Saturday, November 29, 2014

SPX S&P 500 Monthly Chart Overbot Rising Wedge Negative Divergence Price Extended

The monthly charts receive new prints on Friday for the last trading day of the month; EOM (end of month). Wednesday, December 31st will mark the EOM, EOQ4 (end of fourth quarter), EOH2 (end of the second half of the year) and EOY (end of year). The bulls float the stock market higher courtesy of rich Uncle Fed and other global central bankers (CB's). The obscene run-up in 2013 is purely due to the BOJ money printing destroying the yen as well as the ongoing Fed QE (quantitative easing) Infinity and ZIRP Forever (zero interest rate policy). This central banker-fueled orgy continues in 2014.

The pink circle shows the market pull back which was stopped by the Fed that knew a serious negative market event was at the door step. Stocks were sliding down the rabbit hole so St Louis Fed's Jim Bullard was sent out to announce that QE will always remain on the table despite the program ending in the near term. A 'V' bottom was created by the Fed and stocks never looked back. Further gooses occurred by more dovish Fed (US) commentary, the BOE (UK) promising more stimulus, the PBOC (China) injecting liquidity, the BOJ (Japan) shock and awe on Halloween bludgeoning the yen, the ECB (Europe) promising government (sovereign) bond purchases and the BOJ canceling the proposed sales tax hike from October 2015 into April 2017. Banzai! The global central bankers have colluded to throw everything possible at the markets, including the kitchen sink, so the ammunition remaining to prevent the next market collapse is very thin.

There is one more ace in the hole for the CB's where the ECB may announce the sovereign bond-buying program as early as this Thursday, 12/4/14, at the regular monthly meeting which will likely goose markets higher again, perhaps back up to the upper standard deviation band at 2115 and rising. Keystone's 80/20 rule says 8's typically lead to 2's so a breach and close above SPX 2080 would open the door to 2120's. The market bears need to hold the line at 2080 and lower.

The chart is very ominous but against the back drop of central banker intervention. The Fed could reinstate QE again, a QE4 and more, to further goose the stock market, however, the central banker intervention only works if investors and traders have confidence in the Fed and other CB's. Once confidence is lost (and you wonder why it has not been lost already after six years of easy money pumping the stock market but the middle class and poor continue to suffer through structural unemployment) the end game is at hand. CB intervention and quantitative easing only works when one or perhaps two world central bankers are performing the shameful deed.

Over the last few years, what started with the Fed to save the stock market in 2009, has now rippled around the globe with all CB's getting into the act printing money. The intervention has now reached the point where the global CB's have colluded to create the last market stick-save in October. The end game is likely very near since there is no where else to turn to extend the game (except for the ECB sovereign bond purchases). In addition, nations are starting to slit each other's throats with everyone performing central banker intervention in a race to debase; a race to the bottom. The Fed is still in the game as well with the ongoing ZIRP Forever policy (zero rates forever to pump stocks higher).

Against that macro back drop, the chart speaks for itself. The collapses from rising wedges can be quite dramatic and you got a small taste with the September-October selloff. That was child's play compared to the carnage and damage a collapse from a rising wedge can perform. The pull back in September was forecasted by the negative divergence and it was very likely that a multi-year top was placed. The bears were in clover from the September top down to mid-October when the CB's colluded to create all the shock and awe described in the second paragraph. The SPX has needed to return to the middle band, the 20-month MA at 1826 and rising, for the last two years; it is astonishing that price is not permitted to retrace due to the CB intervention. Price is extended above the 10-month MA, 12-month, 20, 50, 100 and 200-week MA's, the ribbon is fully extended, so a mean reversion is desperately needed and a drop to the 1850 and lower would be a realistic expectation at a minimum. As the months proceed, a trip to the lower band now at 1537 and rising is definitely on the table (as the months play out the lower band will likely venture up into the 1600-1700 area serving as a downside target.

Back to the near-term, the power of the central banker actions creates momentum. Note that the MACD line ekes out a tiny higher high which leaves the door open for a jog move in price say down for December and/or January, then back up for January and/or February, where the top would be in. Ditto with the RSI trying to squeeze out a higher high. The other indicators are firmly in neggie d and overbot wanting price to give up the fight now and to retrace for months and perhaps a year or two ahead.

The dip-buyers were tripping over each other to buy stocks in late October once the central bankers sounded the all-clear signal creating robust volume. Also keep in mind that much of that volume was sell-side earlier in the month. For November, higher highs occur in price but the highs occur at only two-thirds of the volume from October. The three blue circles clearly show distribution periods over the last year where the smart money takes advantage of the hype and market euphoria, like now, where pundits parade across television and computer screens telling Joe Sixpack and Aunt Nellie to "buy, buy, buy!" The retail investor is caught up in the hype and rushes in to buy the top of the market with the smart money eager to hand off shares to the incoming bag holders. Every market top needs sucka's. The 'pump and dump' scheme is as old as trading itself and Joe and Nellie will serve as cannon fodder.

What does all this wind-bag rhetoric conclude? The projection is that a major multi-year stock market top is at hand either in place or will top out over the next three months. Two potential paths are in play one where stocks simply top out now in December and move lower for the following months and more, or, stocks top out now and pull back, only to return to the highs one more time in early 2015 (due to the rising MACD) where the multi-year top will occur. A lot depends on the ECB sovereign bond-buying program since the central banker's are the market. The stock market is likely at the juncture where playing more upside is like picking up nickels in front of a bulldozer. If you enjoyed strong stock gains, it would be prudent to cash-out and sit on the sidelines a few weeks or months and see what happens. Ditch all your longs and spend some time enjoying life instead. Short sellers can feel comfortable increasing short positions as time moves forward.

The monthly chart is also completely negatively diverged as compared to the 2007 market top adding more negative energy for the path ahead. ECB President Draghi is the wild card. Perhaps if he back pedals or experiences difficulty in being able to announce the sovereign bond-buying program the multi-year top is likely in now. If he announces shock and awe on Thursday or at the next meeting on 1/8/14 with a government bond-buying program, then another spurt will create the multi-year top probably in January-February. Market bears have to exercise patience but their promised land as shown by the chart above is coming in the weeks ahead. Pay attention to the 10-month MA at 1949 and rising, and the 12-month MA at 1927 and rising (this is a Keystone signal called the 'cliff') since these two support levels confirm that the end is at hand. 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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