Sunday, May 4, 2014

SPX Monthly Chart Overbot Rising Wedge Negative Divergence

The monthly charts receive new prints last week as April ends and May begins at 1884. Same-o topping type behavior is ongoing. The red rising wedge is wicked. Price collapses from rising wedges can be quite dramatic. The indicators are overbot and negatively diverged. If you recall from last month, the wait is for the MACD line to cooperate with neggie d and it has finally bent over but this is due to the last couple days of price action in the new month of May. Therefore, the bulls may be able to hold things together for one or two more months but that would be it. Watch for the negative MACD line cross (red circle) for the firm confirmation that the end is nigh.

The old-timers like to watch the 10-month MA now at 1800 as a key market metric. If you note earlier this year that is exactly where price bounced from indicating that this moving average is very important to professional traders. The 12-month MA at 1775 is Keystone's line in the sand where very ugly things happen to markets; cyclical bear patterns that will control markets for months or years. The most reliable stock cycle is the 18-year cycle now in a secular bear from 2000 to 2018. You sure would not think that to be the case considering the joyous market tops in 2000, 2007 and now. Actually, It is very common to have strong upside cyclical bull rallies within the secular bear cycles like the Iraq War Rally from March 2003 to October 2007 and now, the Fed, BOJ and central banker pump rally from March 2009 to present. The secular bear should exert itself forcefully over the coming four years to finish out this highly reliable cycle in 2018 give or take a year or two.

The haunting aspect of this chart remains the March 2009 low where capitalism and free markets ended. The bad side of capitalism, where companies must liquidate and go bankrupt to clean the markets and economy, was not allowed to occur. Everyone receives a trophy nowadays and the stock market is no different. People only want the good side of capitalism and not the bad side. Free markets ended in early 2009. The current situation is simply central banker liquidity-driven markets. This party continues, until it does not. As long as traders have confidence in the Fed, BOJ, and other central bankers' policies to keep the money spigots flowing and the stock market heading higher, all is fine. When confidence is lost, due to worries about inflation, or a realization that the Fed has been winging it the whole time and is actual clueless about what they are doing, the end game begins.

The chart clearly shows how the RSI, MACD line, histogram and stochastics all wanted lower lows than the March 2009 low at the infamous 666 but the central bankers would not permit the cleansing process to continue. Note that the money flow was actually positively diverging and was giving the blessing to the market before QE1 was announced. If America could have stuck it out a few months or one year longer the economy would have rebounded to glory without any of the current debt. Instead, the banks, that caused the bulk of the financial crisis, were bailed out and rewarded for their greed by the taxpayers who now suffer through structural unemployment that will continue for years. Worst of all, the easy money and confidence in the Fed will end writing the final tragic chapter. Over the last nine months note that the large volume month was the selling month of January. Price is rising on less volume.

Projection is for price to roll over to the downside at any time forward, within a month or two, creating a multi-year top. The Nasdaq and RUT have been rolling over on a monthly basis so they may be leading the parade lower. Any long position that you are not willing to hold for a few years should likely be thrown overboard. Traders and investors are running into dividend and blue-chip stocks thinking that will provide safety. Note the obscene rise in the utilities sector this year. If the dramatic price collapse occurs from the rising wedge, which would be expected, these folks will all have their heads handed to them. Chasing a 3% divvy yield will appear unwise if the capital price depreciates -20%. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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