Given the development of stock market pricing over the past few years, and especially since the spring of 2011 when all of our key indicators peaked on the long-term cycle, we are increasingly wondering if the current stock market could be moving toward another one of those historic, and seminal, moments.
Market Overview – What We Think:
- Minor Cycle has begun to look increasingly vulnerable to extent we suspect “spiky” upside nature of index pricing is unsustainable considering fact all cycles from Minor to Major are historically “Overbought.”
- Some have pointed out that Dow Theory confirmation generated on January 18 is very positive development, but it’s important to remember one previous Dow Theory confirmation that was generated on September 3, 1929 at precisely the high (381.71) of the bull market begun several years before. That high was no exceeded for the next 25 years.
- In spite of bullish price “tendencies” since November lows, uptrend initiated in March 2009 is mature and could very likely be much closer to an end point than not. In fact, upside “measured move” targets calculated on a variety of cycle points suggest that on average S&P, Dow 30, NASDAQ, and VAY could be within 10% of ultimate highs in this bull trend.
- So long as pricing and indicators are not in synch on upside as they were from March 2009 until May 2011, lingering long-term doubts will persist, and we will continue to wonder how much longer this market will be able to shake off unfavorable indicator divergences.
In the accompanying chart that includes Monthly Cumulative Volume as applied to both the S&P 500 and the Dow Jones Industrial Average, first note the price patterning in both issues over the past 13 years and since the tech sector bull market high in early 2000. First there was the pullback to the 2002 lows. Then came the rally into the 2007 highs that were followed by the 2008/2009 bear. Next was the March 2009 low and the subsequent bull that is still in effect. But notice something else. Index pricing in both issues bears a striking similarity to a massive Head and Shoulders top with a Left Shoulder, a Head at a slightly higher high, and a developing Right Shoulder.
Daily S & P 500 with Cumulative Volume (CV)
Weekly S & P 500 with Cumulative Volume (CV)