A Unique Moment for the S&P 500

It will be difficult in the future to see a unique moment like this for the S&P 500 (SPX).

The unemployment rate is higher than 9%, and all are "happy" or minimize it with some data about jobless claims that could be misleading.

General Motors (GMGMQ.PK) has gone for Chapter 11, and the media all tried to minimize this: 100 years of industrial American history gone to the wind.

Inflation is going to decrease in some geographic areas and start generating deflation, the real monster for business recovery.

In this strange and even ironic (for some reasons) economic context, the cyclic moment for S&P 500 is at the top, and the odds for a trend reverse are high - very high.

As you can see from the charts, the S&P 500 cyclic indicator is high, and it is going to go down with the market. The market itself is near the 20 period monthly moving average, and it has just started to fade. Even the monthly Stochastic indicator is enough high to call for a fall, and the monthly MACD is still well below zero.

This week will be crucial. A break of 890 could be the signal for a bear movement of some weeks, with the favor of a new major cycle starting, and with the favor of monthly indicators. On the contrary, the bull will survive only above 946.

Comments

[Pauly B:]

On the Ichimoku Kinko Hyo Cloud study the SPX is rejecting the Kumo cloud @ 950 on the weekly. The Kumo Cloud is very thick and I dont see any type of strong penetration of the cloud. On the weekly I agree with you on the level of 890 as key. I see 874 as the next level of support.

If we break 890 this will also put us back into the long term Andrews Pitchfork on the weekly and we could be heading to re-test the lows by late July early August. I dont think that is going to happen but we could go down around 800.

Jun 21 08:41 AM

[Mike McCurdy:]

"Inflation is going to decrease in some geographic areas and start generating deflation, the real monster for business recovery."

I have no idea what will happen right now but the above is very much in doubt.

And we are also coming up in quarter end with low summer volume - factor that in when you think about a break below support this week .

Jun 21 08:52 AM

[Mad Hedge F...:]

Things are getting hairy. Ok, people, the sucker’s rally is now over. If you had any doubt, take a look at the insider selling figures for April and May. Corporate selling of stock has soared from $10 billion in April to $63 billion in May. Insider selling jumped from $1.9 billion to $2.2 billion, an enormous amount. Who were the suckers? Inflows to mutual funds and ETF’s ballooned from $7.0 billion to $10.3 billion. Retail investors are always the ones who ring the bell at the top of a move. That explains why dozens of technical indicators are rolling over. They’re are not signaling a crash, but they are not saying we are going up any time soon, either. If for whatever reason you can’t get out, sell short dated calls against all of your positions.

Jun 21 09:43 AM

[Joe Red:]

What will happen when the 50 crosses the 200 this week?

Jun 21 11:27 AM

[Graziano Na...:]

Mike,
read these articles. Deflation has just begun, or is very near.

www.nytimes.com/2009/0...

www.nytimes.com/1996/0...

Jun 21 11:37 AM

[MadScientist:]

Probably the same thing that happened with the Nasdaq - its "Golden Cross" was on June 5th, where it opened at 1864. After briefly going higher (to 1880 intraday on June 11th) it is now at 1827, a loss of 2% in the last 11 trading sessions.

In other words, not much. Like many here, I'm anticipating a further correction in the major markets. The 1880 value hit on 11 June is almost exactly a 38.2% retracement of the October 2008 high (of 2835). The market has failed to break this level which would indicate a retracement to the 23.6% level (1660), before rebounding - or falling even further.


On Jun 21 11:27 AM Joe Red wrote:

> What will happen when the 50 crosses the 200 this week?

Jun 21 12:19 PM

[Northstar10000:]

The S&P takes out the devil at 666

Jun 21 05:56 PM

[Graziano Na...:]

Hi Joe Red,
your question is:
"What will happen when the 50 crosses the 200 this week?"

I simply reply to you: it is not a cross, it is the Death Kiss!!

Bye.

Jun 22 10:22 AM

[Fred Voetsch:]

Nowadays everyone loves to dismiss Dow Theory because the Industrials are 'not as meaningful' and 'things are different this time' and yet Dow Theory has called this market like Jim Cramer calling a market low...whoops, bad example. :-)

In early May the Industrials and Transports both set new highs within this secondary move up and then backed off for a bit. A month later the Industrials clearly broke above those May highs but the Transports have failed to confirm. As well, both have failed to better their November highs and so it looks like a clear case of the primary bearish trend holding.

This is an almost picture-perfect setup to profit from a bear market: Dow Theory is on the bearish side; the data clearly suggests many headwinds for the economy ahead; the market is well above its historic valuation levels (PE ratios, book value, dividends, etc) for the beginning of a bull market; the stock market is significantly above its trend value, which I place at around 6,000 for the DJIA; interest rates have nowhere to go but up.

Jun 22 01:11 PM