Now, I sure don't believe the economy is actually going to improve - on an underlying basis, but as we've seen, the facts often don't matter when it comes to price-discovery in the current equity markets. So long as the central bankers keep on printing, that will cause underlying upward pressure on most asset classes. The only question is if they are they doing enough printing to counter the various deflationary pressures? I think even the Bernanke is forever pondering on that question.
So..lets start with...
SP' near term, monthly
Without question we are in a strong up trend, and the next key level is 1440 - which is what most agree to be the right shoulder of the 2007/8 H/S. Near term, 1440 looks very viable, we're only talking 2.5% !
The 'P3 hasn't even started yet theory' - scenario'1
This would be my immediate 'best guess'. It would assume there is NO QE3/ MBS buying by the Bernanke until the autumn. A price hit of around 1440, a few weeks trundling sideways, and then a gradually accelerating decline into early October. This scenario would assume we had 5 broad waves up from the 2009 low, and now we will soon begin a challenge to see if we can break below the ascending wedge.
The 'P3 hasn't even started yet theory' - scenario'2 (bullish outlook)
This would make for a very curious situation, where once again the bears get excited with a 4-6 month decline, only to then get stuck - with a slightly higher low being put in place. For the bulls, a new all-time high in late 2013 would be a major victory. Further bouts of QE would certainly help this outcome. In terms of EW counts, I don't know if it'd be considered a 1,2 1,2 1....and soon another 2 lower. I am not well versed in 'the rules'.
SP' bearish outlook'3
Assumes no more QE this year, a 1440 peak, with a break back to the rising channel line - putting in a low of around 1150 this October. Here, we'd then look for a lower high in Spring 2013, that would then confirm a very gloomy outlook into latter 2013/14. The deflationist bears will be looking for this scenario.
SP' very bearish outlook'4
This is about as doomster as anything out there. The key issue would be that not only would a high be soon put in this March/April, but that the next wave lower will break the rising channel line of 1150, take out the hugely important psy' level of 1000, and break the market back into the mid/low 900s - before the first retrace back upward. The Bernanke will not want to see this outcome.
Mr VIX...real low right now
VIX decisively broke below what had been a nice floor for 6 weeks. The lower 'bollinger line is 11, that might be the ultimate low point, and equate to sp'1440..or would we need 1550 for a VIX of 9/10/11 ? Right now even a move 18 is irrevelent, and even a hit at 24 would not confirm any major bearish scenario.
So much time...so few scenarios. Strike that...reverse it!
Clearly, we are going to get a nice multi-month down cycle at some point. However, both weekly and monthly charts right now show no sign of a turn, and the trend IS up. Anyone still hitting the short button is walking in front of a slow moving 250,000 ton oil tanker.
Bears certainly can tout 1440 - as the next level of resistance. However, if we get a few stable closes above 1455/60, then that level can be thrown out, and would likely mean 1550/70 would be hit sometime this summer/early Autumn.
Four key issues that both sides need to keep in mind.
1. The rising channel line - which by this October will be up to 1150
2. The hugely important psy' level of 1000
3. The fact that the Bernanke will likely wish to do more QE (via MBS purchases) after the next wave lower (whenever that might be)
4. Looking at any of the scenarios, one interesting feature can be noted (and its probably one of the few things everyone can agree on), the market cycles/waves are arguably getting WILDER. Last years crazy action was pretty intense, not least the insane move back upward off the October low. Will 2012/13 be even more volatile?
One final note, regarding the world indexes. A post I did a week ago is important to keep in mind. This late March/April, the indexes will all be poised to break above key levels. If by May the indexes are all holding up okay, then a super bullish outcome looks very likely.
*I intend to cover the world indexes at least once a month on this blog, I next plan to update them over the weekend of March 31/April 1'st.
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As I type this, the futures wheel has spun up to speed, and sp is +2/3pts. Its nothing much, but it sure ain't -10/15 as many bears would be dreaming of. We could easily break 1410 this Monday, and that should easily open the door to 1440.
You know, I do find it almost impossible to totally accept that we're even trading in the1400s again. It will remain my excuse if you notice I type 1340 instead of 1440. It is not a typing error, its probably just a case of wilful permabear denial.
Goodnight, and good wishes for the week ahead.