Stocks continued to rally into options expiration, and we should see the pace of the market slow now that this is over with. The rally, although strong, was mostly related to OPEX. It would seem the bulls have their guts back, and they are once again feeling like they are in charge.

Unfortunately, most of the evidence continues to suggest we will not see an all-time high anytime soon. More than likely, trading will continue on a sideways trajectory, similar to what we saw in the 2015 and 2016 time frame - at least until we start to get more details on the balance sheet run-off which should come in about three weeks, although Powell does speak prior to the Fed minutes.

Additionally, I expect that Fed governors will begin to indicate the balance sheet running off at a pace of about $100 billion a month, as the Dovish Fed governor Kashkari already indicated as much.

Sideways Consolidation

The chart below illustrates why I think we may be in for a period of sideways consolidation in the equity market, the trajectory essentially going nowhere in 2015 and 2016 as the balance sheet had stagnated, and falling to some degree in the process.

Then in 2017, as the balance sheet stabilized and even increased some, the S&P 500 was able to rise. But clearly once the balance sheet started its decline in 2018, the equity market endure a lot of choppiness and big price swings.

This time around, we will go from 2016 straight to 2018. This means that between now and May, the market may be in a consolidation phase, and then that dynamic changes again in May.

S&P 500 (SPY)

The S&P 500 did break the downtrend that started at the peak in January. But if you remember my Fibonnaci grid from around that time, which seems to be working fairly well, it shows that the recent rally took the index back right to the 1.68% extension trend line, which is serving as resistance for now.

Additionally, there is a gap that needs to be filled around 4,480, which would tell us a lot about what happens next in this market. If that level of resistance were to break, I would look for a retest of resistance around 4,590, and then 4,650.

However, we have seen this pattern of sharp rallies in the SPX and the Qs before. As I pointed out in my video over the weekend, the rally in the market mimics the move at the end of December and January. If it ends the same, we should see a period of sideways consolidation start this week once the gap at 4,480 is filled.

The term breadth thrust is being thrown around a lot, and this breadth thrust is actually weaker thus far than all the previous during these same four-day rallies on the NYSE.

NASDAQ (QQQ)

Additionally, the options cycle appeared to have a very material impact on the market this week as well, as the chart of the QQQ shows below. The only time the cycle didn’t work was in October. The March cycle seemed to shift, quite possibly because of the FOMC meeting, which was two days prior to the OPEX.

Much of the evidence continues to support the idea that this market rally from the last few days was likely a giant squeeze with copycat patterns galore. If these patterns persist, there is a lot of evidence to suggest a consolidation or a very sharp pullback may occur this week.

Semiconductors (SMH)

For all of its might, the SMH ETF, which rose by 13%, was unable to push above resistance at $270 and recapture its uptrend. This is not very bullish for a sector that was the leader of the market for the past two years.

DocuSign (DOCU)

DocuSign had a huge rally this week, but at this point it looks like nothing more than a gap fill. DocuSign is a good stock to watch this week because it has been battered. If it can continue to rally, then maybe sentiment really has shifted.

Amazon (AMZN)

Amazon did break it is downtrend this week, and the RSI looks strong. However, it needs to clear the uptrend that started in July 2020 and resistance around $3,250 for the rally to see a more pronounced rise to $3,450. If it is unable to clear that $3,250 to $3,300 region, I think it may just head back to the recent lows. So, a lot can be proven here.

Russell ETF (IWM)

The IWM ETF had a big week, too, but you may want to notice where it stopped: right below resistance at $208. Could it still have room to climb? It hasn’t reached resistance yet, but there is a lot of resistance to come for the IWM.

Adobe (ADBE)

Adobe may be the stock to watch this week, with earnings expected on March 22. This is could set the tone for the technology sector, especially following weak commentary from players like DocuSign. Adobe sits just above a huge level of technical support at $415. I’m not going to try to guess what happens here.