Michael Clark's  Instablog

CGTS: TECHNICAL VIEW OF SPX INDEX

How long might this correction last? That is anyone's guess. As long as the US Dollar rally continues. Yes. What is buoying the US Dollar, when, 6 months ago, experts were prescribing the coming Dollar demise. Bernanke has tried to destroy the US Dollar. That was his plan. To sink it, at least -- thereby reinflating the US Debt Bubble.

But several things happened: Europe imploded, sinking the Euro as the next world reserve currency; China and India sank toward a hard landing; and Fed President Bernanke ran into opposition to his continuing plan to further wound the Dollar and, thereby, inflate assets traded in Dollars.

Is more QE coming? What does QE do? QE does not aid economic recovery -- see employment pictures to understand this -- QE inflates asset bubbles, nothing more. But asset bubbles are negative in the long-run for economic growth, since asset bubbles are not growth, but debt-infused 'problems'. Quck fixes; sugar highs.

Another round of QE may not work to sink the Dollar, at least not in terms of Euros. Also, Bernanke balked at QE3, because he was pressured, and perhaps agreed, that the Fed's balance sheet was already too large.

The real frightening thing for stocks, the economy, socieites, is the possibility/reality that all the banks in the world are already bankrupt from Housing Bubble complications -- the Housing Bubble was a global phenomenon, not an America-only abberation. Interest rates held too low for too long creates a biblical flood of cheap...and then worthless money. The only cure, long-run cure, is more expensive money, to rebalance the quotient in favor of sobriety. Higher interest rates will dry out the world and lower flood-waters. This is what we need.

Politics rarely call for or choose what is right. Politics wants short-term benefits, to influence public opinion. If Bernanke issue a new round of QE, short-term stocks, commodities, and house win -- but long-term we are much worse off.

Here's the SPX (GSPC) daily chart. I also look at the SPX monthly chart; and the NDX monthly chart.

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SPX Monthly

The long-term (monthly) chart of the SPX shows an index already in a longer-term downtrend -- and in a short-term uptrend. The key to this chart is where the current market rally ends. If it ends here, then we will have in place both lower lows and lower highs, the characteristics of a bear market. At this moment we are still in an up-trend with montly support at 1075. The blue line in the top pane is a momentum indicator. Momentum has not yet turned down.

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NDX Monthly

This chart shows what I think is the truest picture of the state of the markets -- with a Bear Market that began in 2000-2001. This is, in fact, very similar to the Dow Jones Index chart in 1929-1938, a huge decline, followed by a sideways market, with rallies followed by sell-offs. The real uptrend of the next bull market did not start until around 1947. I think this Bear Market will start back up around or after 2019.

The blue line in the top pan indicates NDX is topping. The last decline was only 8%. Already we have lost more than 8%. NDX monthly support is at 2035.

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MICHAEL J CLARK

CGTS - Hanoi, Vietnam