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$SPX Update – We Are Still A Bit In Limbo With Regard To This Cyclical Bull Market

Daily Chart with Pattern Analysis if a gap fill ends up with a reversal at resistence.

Steve Sack Cartoon From 2008 from SteveSack.com

It will be later this evening before I get to look at some harder data (some via neural net). If I see something even more interesting that I present here, I will cover it. Let’s quickly review what has happened with $SPX, the Standard and Poors 500 Stock Index.

The simple daily chart shows in blue the uptrend line from 2011 which has now been broken. The rally this week has tried to come back to it, but it has failed as yet to do so. The daily reversal pivot based on momentum is in, but further inspection shows that there is a lot of overhead resistance.

For details on this, lets look at a close up of the last month’s price action on the daily chart. The two large breakaway gaps are quite bearish, and this week’s price action only closed ONE of them. A simple Fibonacci retracement patterns from the most recent swing low to the previous all time high shows that a 61.8% retracement lies just below the second gap fill, and that there is considerable price resistance just above it at the 2040 level on the $SPX. That would tend to provide a window from around 2015 to 2040 to provide significant resistance to get through if that rally is to continue. If it does not, it sets up another potential shorting opportunity.  In that bearish scenario shown on this chart, one could see a target low (if complete price symmetry holds up) at anywhere from 1825 to roughly 1760. The 1825 represents previous price support, and the 1760 would by a symmetrical price swing from the area near the second gap fill that is equal to the price swing from the all time high to the 1867.30 low.

That target of 1825 to 1760 ASSUMES that the resistance holds. I will work on a neural net model to see if I can find meaningful statistics in that swing model that might lend some credence to the probability of that happening.  A couple of things are certain however:

1) NO ONE knows exactly what will happen. If we get the pattern completions I describe, the odds could be in the realm of 70% that it will happen, but there are NO guarantees. This bull market for now on a daily chart basis HAS lost momentum though, and price must surpass its resistance to achieve new highs, or it will likely correct further if it does not.

2) The kind of “toilet flush” corrections and “toilet tank fill” rallies are going to become MORE likely and not LESS likely in U.S. equity (and bond) markets in the future. The reason for that is that our currency, the U.S. Dollar, is no longer the only king on the hill, as long as China is the influence that is is on commodity consumption and pricing. It is now attempting (and so far, successfully) to control the value of its currency to control its own export markets and to create an internal consumer economy. The stronger the yuan gets, the tougher it will be for the U.S. Dollar to influence world prices on commodities and shipping rates. Unless the U.S. gets control of its monetary, fiscal, and tax policy, it can expect to become more of a whipping boy than the ship’s captain on the S.S. World Economy If the US does not do so, it will see consumer prices rise and fall insanely like is being seen in places like Australia, where their currency has literally almost inverted against the U.S. Dollar in the last two years. That will also pressure the U.S. Treasury and Federal Reserve to raise our interest rates to get buyers for our massive debt. That will make doing business here extemely expensive, and it will eventually cut drastically into our standard of living.

As the weekend draws closer, I will re-evaluate crude oil and other commodities, and see if there are other interesting tidbits to look at.

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