Turning to other markets for a change, above I have posted a chart of the S&P 500 going back to 1997 (monthly candlesticks). Without trying to make an actual prediction, I would note the following:
-The market suggests the possibility of a triple top.
-Even if the market has topped out, if you look to those earlier peaks in 2000 and 2007, the process didn’t happen all at once, but occurred over 7-months in each instance before the down move really started. As it stands, we’re only in month 2, meaning if history repeats itself, we would be in September or October before a downturn begins.
-The down move during the 2000 cycle lasted 2.5 years, followed by a 4.5 year uptrend. Peak to trough, the 2007 cycle lasted 1.5 years, before the current uptrend which is now 4.5 years old. Eerie, right?
-The more turbulent 2007 cycle (i.e., bigger red candlesticks) speaks to the theory that trying to kick the can down the road leads to bigger and more painful blow-ups each time.
Observations complete.
If I were going to second-guess myself on what the charts are foretelling, it would be because of my terrible track record lately, as well as the unprecedented amount of liquidity from the Fed, BOJ and ECB. Also, it’s fair to question the predictive power of charts alone, since I have come to believe that technicians, by nature, generally fall into this form of analysis because they aren’t smart enough to read a balance sheet :)
Still, on a more serious note, people might finally be realizing that the economy is not in such great shape – the disappointing earnings season just the most recent evidence.
