SPX Monthly Chart Overbot Rising Wedge Negative Divergence

The cyclical bull remains in play as the 5-year rally, one of the longest in stock market history, continues. For the month, the SPX gains +0.7%, the Dow +0.8%, the COMPQ (Nasdaq) -2.5% and RUT (Russell 2000 small caps) -0.8%. The trannies (TRAN) are up a huge +3.1%. Transports print new highs but the Dow does not continuing to non-confirm the rally from a Dow Theory perspective. The SPX has only printed four down months in the last two years. The central banker money is powerful. Tech and small caps, however, the market leaders, may desire a different outcome moving forward.

The last day of the month of March began with the bears ready to post a negative month but instead the bulls slap the bears in the face stealing victory away with a very bullish day driven by the Yellen dove rally. Despite the euphoria in markets, equities continue to print a multi-year top. The indicators are overbot and the rising red wedge is a wickedly bearish pattern. The drops from rising wedges can be quite dramatic.

The indicators are overbot and the red lines show negative divergence across the board in the shorter and long-term time frames. This is a chart ready to roll over but keep in mind it is on a monthly basis so bears may have to be patient for another one to three months. The only fly in the ointment for bears is the MACD line (short green line) that remains long and strong. Thus, even after a sell off, price will want to come back up near or above these levels again and then officially roll over for months perhaps years ahead. The 18-year stock cycle, the most reliable cycle, remains in a secular bear from 2000 to 2018 so the chart will likely usher in the weakness expected for the secular bear into 2018 when the long-term secular bull will begin for 2018-2036.

The chart shows the cyclical machinations that operate within a typical secular bear. Sharp strong rallies are not uncommon and the 2003-2007 Iraq War cyclical rally illustrates this point. The cyclical bull followed where ex-Chairman Bernanke dropped money from helicopters with QE1 in March 2009 that saved the day and created this ongoing 5-year Frankenstein rally. The Fed and ECB pumped the markets into last year when the BOJ took control to stab the yen lower and provide further stock market fuel. The stock buyback programs, which are continuing, then provide the cherry on top taking many prices to these parabolic highs. Buybacks are an accounting trick to boost stock prices and typically about three months after the announcement a stock will typically be lower. Companies keep introducing new programs to push any negativity forward but the expectation is that the buyback juice is running out.

The projection is for sideways to sideways lower for the foreseeable future, months and potentially years. The stock market is expected to place a top within the next three months and it will likely be a multi-year top similar to 2000 and 2007. The top may already be in. The remaining tiny bit of bull juice with the MACD line described above will create a recovery rally after the next pending selloff but the path forward should allow the secular bear to start growling again. The 10 and 12-month MA's (not shown) are critical lines in the sand when price starts moving lower. The 10-month MA is 1753 and rising and price touched this danger line one-month ago where the bounce occurred. Big market trouble occurs if the 10-month MA is lost that is why the money men saved the day when price was about to collapse under.

The 12-month MA is 1730 and rising and represents the cliff where bearish markets are locked firmly in place moving forward. A potential path forward is a weak April and/or May, then a recovery rally in May or June, then a rollover to confirm sustainable downside for the months and years ahead from June-July forward. The price action in coming weeks will represent the proverbial picking up of nickels in front of a bulldozer; very limited upside potential with massive downside potential poised to occur at any time. 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.