SPX S&P 500 Monthly Chart; Overbot; Rising Wedge; Negative Divergence Developing

Keystone is finishing up the yearly prognostications and had the SPX monthly up on one of the screens. This is always a favorite of site users so lets take a look. There's a lot of spaghetti on this chart. Starting with the red lines; they show the rising wedge pattern, overbot conditions and negative divergence that conspired to cause Keystone to issue the market top call in the spring 2015 and markets topped out May 2015 which was no surprise. Market participants, however, were extremely surprised.

The expectation after the May 2015 top would be that it was a multi-year top. The central bankers, however, will not give up the ship and continue to print money like madmen that created the February 2016 bottom. The Fed planned to hike rates four times last year and only hiked once with a couple weeks remaining in the year. The Fed was accomodative all year long. Ditto the BOJ. Ditto the PBOC. The BOE promised boatloads of stimulus after the Brexit vote in late June that pumped stock markets higher. The ECB extends its QE program creating more upside joy in equities and vast riches for the wealthy elite class that own large stock portfolios. The central bankers are the market and have been since March 2009. You are stupid if you do not understand this fact; it is as plain as the nose on your face. These are not your Grandfather's markets.

The icing on the cake in 2016 is the Trump Rally to end the year as investors expect huge spending on infrastructure as well as less regulations and lower taxes. The eight years of central banker Keynesian spending, however, may face its Waterloo this year. The standard deviation bands (pink) squeezed-in one year ago and stocks were crumbling lower so the expectation would have been for a dramatic fall from grace fo rthe S&P 500 but that did not happen. The rising wedge pattern is a wicked nasty bearish pattern where price can easily drop to the distance of one-half the wedge and even lower (which would be the 1100-1500 area in the chart above). Price is now touching the upper band at 2280 so a move back to the middle band at 2090 is in play as well as the lower band at 1899.

The purple boxes for the ADX show how the crash in 2008-2009 was a strong trend lower. Markets were never allowed to correct properly, however; the US government in collusion with the Federal Reserve spit on free markets and capitalism and stepped into the markets to save the banks and selected companies like AIG and GM. President George W Bush famously said he had to destroy capitalism to save it. Isn't that sickening to hear? The United States financial system is best described as a 'pseudo-free market crony-capitalism' system.

As central bankers pumped stocks higher from 2009 into 2013, the ADX was not impressed and would not confirm a strong upside trend. This is when the central bankers began coordinating their efforts globally. The Fed, ECB, BOJ and other global central bankers talk daily on the telephone to coordinate their market-pumping shenanigans. Former Fed Chairman Bernanke said he would provide QE Infinity and ECB President Draghi famously said he will do "whatever it takes." That was enough for the ADX to confirm that a strong trend higher in the stock market was occurring in late 2013, all of 2014 and through 2015. That strong ADX trend ended one year ago. Those calling for continued upside in stocks must realize that the market is NOT in a strong uptrend currently.

The SPX is elevated above its moving average lines and needs a mean reversion lower. The standard deviation bands prefer a move lower for price now that the upper band is violated. The maroon lines show a rising wedge and negative divergence across all indicators for the last couple years or so, all very bearish indications for the monthly time frame ahead (long-term trading). In the shorter term, the tiny green lines show the MACD line long and strong so price likely wants to jog (down for a month-up for a month-then down) for a couple months before potentially topping out with another major multi-year market top a la May 2015.

The SPX needs to take a rest from the big rally but the MACD line would like to see another high after a pull back in the monthly time frame. This hints that stocks will drop, say, in January, then a recovery in February then a potential topping out in March. The current thinking is that the stock market will print a multi-year top at anytime forward and a specific guess would be in the February-May time frame.

Interestingly, the ECB, even though the QE program is extended, will actually reduce monthly bond purchases going from March into April. This may represent peak central banking beginning the end of the eight years of obscene Keynesianism. It is likely prudent to exit all  long plays that you are not willing to hold for many years forward. The chart can be updated and analysis adjusted, if needed, as the weeks progress. The next final print for the monthly charts is on Tuesday, 1/31/17. Keystone's yearly prognostications call for a multi-year market top to be placed this year. 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.