Sunday, September 21, 2014

SPX Monthly Chart Overbot Rising Wedge Negative Divergence

The Fed-induced upside stock market rally for 5-1/2 years is remarkable. The afterburners kicked in to start 2013 when Congress avoided a budget crisis. The BOJ shouted "Banzai!" in 2013 printing yen like madmen creating the huge move in Japan and US stock markets. The big pump in stocks occurs through financial engineering with companies offering higher dividends and most importantly stock buybacks, funded by the Fed's easy money. This makes the people holding stocks wealthier, too bad it is only one-half of the country. The other half, the middle class and poor, pay the way for the wealthy to become wealthier but they do not benefit themselves since they do not own stocks.

So here we are at new all-time highs again at 2019.26 the highest print for the S&P 500 in history. We update the monthly chart waiting for the technicals to signal the roll over and end this historic 5-1/2 year rally. There are 7 days remaining in September. The month began at 2003.37 so monitor this number closely in the days ahead. The 2002-2003 level is very strong S/R (reference the SPX S/R missive). Note the ADX at near 39 and contininuing higher verifying the strong trend higher for the stock market. Is it flattening? Note also the MACD line that continues sloping higher. Is it flattening? The money flow shows a strong peak but that is from August so you have to wait until Tuesday, 9/30/14, for the final monthly print to see if the money flow negatively diverges, or not.

The RSI, histogram and stochastics are negatively diverged telling price to give up the ghost and stop the multi-year upside masquerade on central banker money. The monthly print in 7 days cannot be more important since it may identify the exact top in the multi-year rally. When the final price print occurs in 7 days, watch to see if the MACD, ADX and money flow print lower (negative divergence) to join the neggie d with the other indicators. If so, the top is in and the bears will finally receive a multi-month turn at bat.

Note how volume trails lower for the last few years. Option volume remains consistent so savvy investors and the wealthy that own stocks are having a blast in the markets at the rest of America's expense. The middle class and poor have been burned ever since the 2008-2009 financial crisis and need their savings to pay living expenses so they are unconcerned about investing in the stock market. It becomes harder each day to make ends meet as well as supporting family members and young adults that struggle to support themselves. The US now consists of the have's and have not's created buy the Fed's easy money policies. The wealthy dine on steak and caviar each night and toast the Fed praising Chair Yellen's immense power that makes them richer day after day.

Bringing it back to technicals, in 7 days watch the MACD line, ADX liine and money flow to see if they negatively diverge. If so, the end is in for the multi-year rally. The 10-month MA represents a major warning line that the old-timer's like Keystone follow. Note how price bounced directly off of the 10-month this year knowing the serious ramifications if it fell through. The 12-month MA is one of Keystone's cyclical market signals and represents a cliff in the markets. If the 12-month MA fails, extremely bad things will happen to the stock market.

Young adults do not know what a bear market and weak economy is since they have enjoyed the recent bread and circus years created by the Fed. Likewise tech start-ups. Everyone is chasing the latest shiny object but realize that once the stock market and economy turns south, and they will, life will change quickly. The tech ideas center around folks buying lots of things as well as using new payment systems via smartphone, however, once the economy rolls into recession folks will not be buying much of anything. The rosy sales projections for all the fancy tech start-ups will be immediately thrown out the window. Business will slow in all sectors. People lose their jobs.

Many young folks do not realize how quick and hard this will bite and negatively effect their lives and jobs. Humans have short memories. At the 2007 stock market top, the wine was flowing like water, everyone had a new car, house values were climbing daily, jobs were plentiful and there was no where to go except up. Folks took out big loans without thinking since the current fun times were expected to continue. People's lives were completely changed in 2008-2009 when the ax fell. Prepare yourself for the next ax. Do not become sucked into the ongoing euphoric thinking.

Nowadays everyone expects the stock market to go up forever since the Fed continues a ZIRP Forever policy. Instead of staying at the euphoric party too long, pay off any outstanding loans to the greatest extent possible and save cash. In fact, the chart above may tell you in 7 days that the end is here. Folks nowadays have taken out multi-year loans for expensive new cars they cannot afford reminiscent of the subprime lending that led into the housing bubble popping in 2005-2007. If you can fog a mirror, you can drive a brand new vehicle off the show room floor; these scenario's never end well. Remember, technical-wise, the collapse from a rising wedge pattern can be quite dramatic.

Even if the chart does not completely negatively diverge in 7 days, that will simply mean that the multi-year top is only one or two months more in the future; only delaying the inevitable by a few more weeks. The rising wedge, overbot conditions and negative divergence is extremely ominous. Watch your wallet. Prepare yourself. 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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