Sp, monthly'3e, rainbow, 17yr
Summary
First, I'm using the rainbow chart style here, which is the 'Elder Impulse' system. I find it a good colourful way to more clearly highlight the broader trends.
There are quite a few things to note here...
You can clearly see the 3 big bubbles of the last two decades, tech, property..and now the paper/QE bubble.
The first two bubbles were pretty straightforward. Particularly interesting is that in both of the down cycles, we did not have any green candles. Also, the bounces were contained (almost always), below the monthly cycle 10MA. The floor in both cycles was marked with giant reversal blue candles.
The problematic third cycle
Since the lows of March'2009 we've seen 3 pullbacks - with the latter being the more moderate one. As noted on the chart, it is because of the anticipatory nature of this market - forever looking for more QE, that the declines were not more significant.
So far, in each pullback, the Fed has subsequently delivered with more monetary easing/paper printing. Although yes, QE-twist - currently ongoing, is not new money as such, its merely 'bond curve' meddling.
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I intend to highlight this chart regularly in the weeks ahead - and particularly at the end/start of each month.
What is absolutely clear, the bears need to see a closing monthly RED candle to suggest a grand cycle top is in.
As for how we end this August, a red candle seems unlikely, but blue is viable (the Dow, NYSE Comp are already blue). I think we'd need to close next Friday around 1380/75 to attain a blue candle.
On balance, it still seems the 'best bear case' this autumn would be for a decline to the lower bollinger, around the sp'1200 level, maybe a touch lower, 1170/50. I certainly would disagree with some of the doomers out there calling for sp' under 1100..or even 1000 before year end.
If there is anything that can be discerned from the previous two giant cycles, it is that it does take some considerable time to build downward momentum. Sure, if we can hit sp'1200 sometime later this autumn, maybe 2013 will indeed be the year the bears can go on the rampage. As it is, we have a green candle..and that is most definitely not bearish!
Anyway, I think the chart above is certainly something to consider.
Goodnight from London