Equity index price levels depend on cycle

Weekly Review: Are equities art?

Remember the “new paradigm” and “it’s different this time” themes of the late 1990s stock market just prior to the bull peak in 2000. Amazon (AMZN), priced at 113.00 in December 1999, was “definitely headed” for $400, according to one prescient analyst. But before AMZN rallied further to pricing nirvana, it had to decline from $113 to $5.50 for a 95% loss. The stock has gained over 4400% since October 2001 to last Friday’s close at 248.65 (on its way to $400 again?), a very handsome gain indeed, but what was the justification for holding AMZN from December 1999 to October 2001. Was it a piece of art in the making? Tell it to the guy that bought the stock at $110 and sold at $20.

Market Overview – What We Think:

  • August 21 high in S&P 500 (1426.68) was no doubt a short-term high, but it remains to be seen if that peak will prove to be best level of Intermediate Cycle uptrend in effect since June 4 lows (1266.74—S&P 500).
  • There is also fact market is rapidly approaching time of year that has proven to be historically vulnerable. Think 1929, 1987, and 2007.
  • Ongoing negative divergence by MAAD in face of market strength since July 3 when Daily MAAD peaked and since April 2011 on larger weekly cycle reflects fact Smart Money has been looking askance at equities on both short and long term trends.
  • Developing short-term “Oversold” readings notwithstanding, odds suggest that in addition to a short term high made August 21, larger cycle to intermediate-term highs may also have been reached.
  • Ongoing negativity on Minor Cycle would threaten reversal of Intermediate Cycle positive and then long-term uptrend stretching back to March 2009 lows. Latter would almost immediately become an issue if Intermediate Cycle turns negative since long-term trendline is now approximately coincident with June lows (1266.74—S&P 500). In other words, if June lows are fractured odds would be good major advance since March 2009 is over.

Our point here is that the justifications for buying real estate by big bucks investors could be a symptom of a trend that has gotten very, VERY, mature. It doesn’t matter that the $100 million property in that new ritzy building has 20 times as many bedrooms, toilets, windows, doors and doormen as a Manhattan studio apartment with no bedroom and one potty selling for 1/400th the cost. Both are subject to trends that ultimately exhaust themselves.

Daily S & P 500 with Cumulative Volume (CV)

cumulative volume, s&p

Weekly S & P 500 with Cumulative Volume (CV)

cumulative, volume, daily

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