Is it possible the chart below can provide us with a simple answer to the question of what lies in store for the stock market this summer? My eye is drawn to the overbought peaks corresponding to the DJIA’s two most recent highs on the daily chart.  There is no divergence here, only a regular pattern of higher price highs matched by correspondingly higher stochastic highs.

This suggests to me that the moderate buoyancy in evidence for the last month or so will persist, even if there is not necessarily sufficient buying power to push the blue chip average to new record highs. Although mild weakness could conceivably surface at times as stocks work their way higher, the chart does not in any way suggest to me that a downdraft is imminent or even likely over the next 4-5 weeks or perhaps longer. Bottom line: Be ready for a tedious summer as stocks huff and puff their way to modest gains.

Continuation Pattern

I’ve seen quite a few profusely annotated charts lately that purport to explain why the stock market is about to either explode or collapse. However,  I’d prefer to keep my analysis as simple as possible. I’m no expert on stochastic indicators, but I have nonetheless observed patterns similar to the one in the chart above many thousands of times over the years, and to me it “feels” like it’s pointing to a continuation of the current uptrend. If you care to see what stochastic indicators look like when they are signaling otherwise – signaling trouble, that is -- then I suggest that you take a look at the divergence recorded in conjunction with the March 7 top.