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S&P 500 End-of-Quarter Review

by David G. Hawkins

Since this is both the end of the month and the quarter, I’ll concentrate on the monthly and quarterly bars charts, especially the quarterly one.  In the two weeks since my last update here, the weekly bars and daily bars charts have changed very little, still in basically sideways consolidations.

Long Term – Monthly Bars Chart

The first chart here is the updated monthly bars chart, and there isn’t much more to say about it than I said a month ago.  The latest candle is still just sitting above the Old R4 curve.  So, let’s move on.

Very Long Term – The Quarterly Bars Chart From 1980

The second chart here is the quarterly bars chart from 1980 through yesterday.  Unlike all of my other charts in this blog, which are equivolume, this one is time-based, and the Midas curves on it, including the TopFinders, are all calculated with every volume datum set to 1 instead of using the real volume data.  In chapter 6 of our book, I go into a lengthy exposition of why it is necessary to make these changes when analyzing the very long term timeframe, and am not going to repeat that here.

Early 1982 was the beginning of the monstrous Baby Boomer Bull Market that ran until 2000.  Notice that TopFinder TF1 tracked it beautifully, ending within the the bar after the top.  After the Internet bubble burst in 2000 and the market crashed down to its low at the end of 2002, a powerful new uptrend brought it right up to the 2000 top again.  See how TopFinder TF2 tracked that perfectly.

Next the Great Recession started in 2007, taking the market even lower than it was in 2002.  Now notice the most remarkable thing:  That green curve is the Midas support curve launched at the beginning of 1982 bull market.  As the market came crashing down in 2009, it stopped exactly at the support curve and bounced up!  If you’ve been reading our book and following this blog, this sort of behavior should no longer be a surprise to you.  I’ve been at this for over 16 years, yet every time I see this happen, it still raises the hairs on the back of my neck.  The Midas method works so well it’s almost spooky!  When the market started to move up in the second quarter of 2009, absent the Midas method you would’ve had no reason to trust that a real bottom was in.  But, seeing the bounce off such a major Midas support curve would’ve told you.

In April of 2009, the market started another powerful uptrend, looking very similar to the one that started in 2003.  TopFinder TF3 is tracking it, and it is only a bit more than half done, projected to end at the dashed vertical purple line, which could easily take it up above the 2000 high.  At the end of last year, the market broke strongly above those two major red resistance curves, attesting to the strength of this uptrend.

But in the second quarter of this year, the market stalled, and this third quarter saw a dramatic pullback, which closed below both the S2 tracking this trend and TF3.  Closing below the latest S curve is the Midas definition of the end of a trend.  Therefore, I must conclude that the uptrend that started in April of 2009 is over.

Why did this latest uptrend end so prematurely?  I think it is certainly no coincidence that the top in June happend exactly at the end of the Fed’s QE2 program.  The money from QE2 didn’t go into helping the economy, it went straight to the stock market.

Very Long Term – The Quarterly Bars Chart From 1950

Now let’s look even longer term.  The third chart here is the quarterly bars chart from June of 1950, which is the earliest date for which we have daily data on the S&P 500.  This is just a few months after the 1949 beginning of the huge Eisenhower Era Bull Market that ran up to 1972.  The lowest green Midas S curve on this chart runs essentially from the beginning of that bull market, and is analogous to the curve started in 1982.  When the market swooned over 40% in the recession of the 1970s, it came down and supported right on that lowest curve, another hair raising performance of the Midas method.

It’s simplistically tempting to continue the analogy, and say that, after we work through some short term difficulties, we’ll be off to another major very long term bull market.  But, there are darker, more ominous clouds on the horizon.  This chart from 1950 is part of a much longer term pattern going back many decades further.  We have monthly price data on the S&P 500 going back to 1871, and in our book I have done a thorough analysis of it.  What it shows is that there are very long term, very deep cycles, and at the present, the market has not yet gotten to the bottom of the current cycle.  This analysis is too much to put in a blog post, so I encourage you to read our book.