Wednesday, April 22, 2009

Longer Term S&P 500 Chart Update

I haven't shown this chart before but I did show a very similar Andrews Pitchfork chart of the New York Stock Exchange back in December of 2006. That post highlighted the probability of a substantial top developing in the NYSE. Which was indeed accurate. (You can find the post by looking in the December 2006 archives or searching the site for Andrews Pitchfork. I would encourage you to review that post if you haven't already.)

The above chart is similar to the December 2006 post in that we are looking at the S&P from the 1982 stock market low that marked the end of a multi-decade bear market starting in 1966. The 1982 low formed the foundation for the greatest bull market in history lasting until 2000 or 2007 depending on the measurement criteria. ie, The S&P and Nasdaq bull market ended in 2000 yet the NYSE and CRB bull market ended in 2007. As we have written on numerous occasions and in different contexts, these tops are likely to last a generation. Or as we wrote specifically as it pertained to commodities - possibly thirty or more years. Or as we wrote with regards to oil, I believe it is highly reasonable to conclude we have set the all-time peak in the price of oil. Sorry peak oilers, we have been critical of your voodoo science often on here. Including when the oil bubble was still going up.

The above trendline off of the 1982 price low has held for twenty seven years and counting. You will notice the trendline was pierced with the recent 2009 correction. But, the trendline has held. As we have written on here, major trendlines are first points of repulsion then points of breakage. So when we hit that line in February, traders started buying (repulsion). But, as we wrote in another post regarding a different S&P trendline, a retest of that low would result in the trendline breaking due to overriding fundamentals. And, indeed that trendline did ultimately break. This trendline will almost assuredly break as well. It's simply a matter of when.

All of the prattling that this rally is telling us the fundamentals are improving is nonsense. We may have stabilized at some lower economic level with all of the infusion of capital into the economy, but there are no signs of anything improving substantially other than more debt. Debt to solve a problem aided by too much debt. That's rich. This rally is not based on a capitulation low caused by associated fundamentals. It was a technical trader's low after hitting this trendline. Bottoms to an environment such as this will most surely be made on fundamentals not Wall Street gaming the market and getting on the boob tube to chortle about the bear market being over.

Shorter term, it will be interesting to see if the market can hold above the upper trendline that was recently pierced.
posted by TimingLogic at 9:57 AM