What, oh what could I possibly be talking about?
Here is a daily chart of the S&P 500 over the last 5 months.
(Giving everyone a minute to let it sink in.)
We talk about the basics of chart formations enough at this site, so hopefully you see what I do – the makings of a head-and-shoulders formation. The left shoulder extends from late April to late June, while the head is in the process of topping off and beginning a move back down towards the neckline at around 1,580. Not a slam dunk yet, but it definitely should cause a shiver down the spine of any equity investor.
Now, let me remind you of something else. Back in mid-April, I observed that the market seemed to be running into a topping pattern reminiscent of 2000 and 2007. I noted that the process could play out over 7 months or so, putting us in September or October before it would be confirmed. So let’s do some simple math. The left shoulder took two months, the head probably has another 4 or so weeks to complete, tack on another 6 weeks for the right shoulder…and you’re right in there at the end of October.
Let me offer a story for how it all evolves. There has been much talk about a taper in September – let’s assume that the Fed tries it out, only to see the markets take a dive, completing the head pattern. So, realizing the problem, the Fed backtracks and re-institutes QE at its full payload. But, the bloom is now off the rose, so the market doesn’t take us as high before the upside momentum is lost. And there is a right shoulder. All in time for an October confirmation of an impending bear market.
I may be wrong. But you’ve been warned.
