SPX Monthly Chart Overbot Negative Divergence

Friday was the EOM so the monthly charts receive new prints.  The SPX has now managed to print a new high for four months in a row. Keystone's SPX 12-Month MA Cross Indicator continues to signal a Cyclical Bull Market in place since price remains above the 12 MA at 1345. The bulls do not have to fret unless they see 1345.  The 12-month MA will signal that the markets are lost and the downside will accelerate strongly. The price and 12 MA crosses are highlighted; the start of the Iraq War Rally in March 2003, the Market Top October 2007, the Market Bottom identified by the QE1 announcement March 2009, the markets were going over the falls in summer 2010 when Chairman Bernanke stepped in to save the day with QE2. The SPX fell under the 12 MA again in summer 2011 but that was stick-saved with Bernanke's Operation Twist program and the ECB jumping on the QE band wagon with LTRO 1 and 2.  In May-June this year, price moved under the 12 MA intramonth, but the rumors of stimulus then the 7/26/12 Draghi pledge of a bazooka of money printing coming saved the day this time.  The broad markets are indeed simply a house of cards built on a shaky foundation of easy money pumping as a global economy stalls and recedes, the worst of two worlds.

The chart remains negatively diverged wanting to see an extended pull back for the broad indexes.  The Fibonacci Sequence is counting down, each quantitative easing move resulting in less oomph, 13 months for QE1, 8 months for QE2, 5 months for Operation Twist and LTRO 1 and 2, and now 3 months for QE3.  But, you know what that means, don't you? Time's up.  The first three quantitative easing money pumps occurred as a result of the U.S. falling into a deflationary spiral and Bernanke, learning from the Great Depression and Japan over the last two decades, wants to avoid this at all costs, so he acted.  QE3 is an oddball, the jawboning served to bounce markets from summertime forward and by the time the Fed got around to announcing the move, the markets had already rallied a long way. This market behavior flies in the face of the trend from the first three money pumps.

Therefore, we find out in the coming weeks if the QE3 move is priced in for the most part and if the markets will roll over and plead for QE4. Note how the volume steadily increased for the bull market rally 2003-2007 building strongly year after year. For the last three years, volume continues to fall, less and less remaining in the sandbox to play, each trader thinking they can easily exit markets faster than the other guy.  Projection is for lower markets moving forward. Watch the 12 MA, now at 1345, like a hawk this month. 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.