May Wrapup

The MCO has been in a zig-zag correction in negative territory for the last few weeks and turned positive on Friday.

The MONTHLY SPX had its first close above the 5 year lower Bollinger Band in 7 months. The market gains for the months of March and April are being misread by many other players and being seen a bear market rally which they suggest is now over because of the large percentage gains. In my opinion, the price action moving the SPX back to the lower Bollinger Band was just correcting a panic overshoot on the downside. This moved prices up to the undervalued zone at the lower BB which has been a good buying point in the past. The month of May saw continuation of the rally along with a corrective sideways pause which should now be resolved to the upside.

On the daily chart I've marked the 928 zone, which is the location of the declining 200 day moving average and the upper 20 day Bollinger band, as a point of resistance --- This seems like a logical point for the index to pause but given the recent pauuse in the MCO, along with the sideways correction over the last two weeks, I believe the SPX is poised to punch through the 200 day average, turning up the Bollinger bands, and then punch through SPX 1000 before we see a more substantial 10% to 12% correction

The MCO at the end of May
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The Monthly SPX at the end of May
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The Daily SPX at the end of May
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Some Perspective

The chart says it all, it's either the end of the world as we know it, or not. Place your bets.
The SPX and the McClellan Summation Index since 1969
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SPX cycles update

It was clear right after the previous post that the higher projection was not going to be met when the indices and the MCO broke down early last week. The MCO is currently making a zig-zag in the -100 zone which is oversold enough for a bounce but it could drop a bit further into the -150 zone.

This is not guaranteed and the cycles are still pointing out a bit towards May 21st for a CIT date. Since it is not likely to be a high, then it should be a low, and the indices could stall here or even go a bit lower before resuming the up trend.

Because the SUM Index approached the 5000 level the bullish trend should continue for several more months.

SPX 65 minute chart with cycles
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SPX Projection

Risking the chance of looking foolish again, I worked up a forward price-time projection. The time span is based on fibonacci symmetry forwards and backwards from the "S" inflection midpoint. Target is SPX 990-1000 on 5/21/09.

SPX 65 minute chart - Symmetry Projection
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SPX Cycles for 5/8/09

An updated cycle chart for the SPX 65 minute chart. Should be self explanatory, if not ask.

SPX 65 Minute Cycle Chart
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SPX Bollinger Bands

If we back up and look at the markets from a bit of a distance it may be easier to get a grip on the more intermediate term direction which is being taken -- up. Rather than use the monthly chart which compresses all the daily emotions into a few bars, I set up my daily chart with moving averages that are the equivalent of 5 year, 1 year and 1 quarter, and then added the appropriate 2 standard deviation Bollinger Bands.

It is clear from this chart that the recent rally has only been correcting a statistically extreme condition and only this week has the SPX moved inside the 5 year 2 STDEV BB's. One can see from the monthly chart I posted earlier that this condition only occurs a few times in a century. I still feel we will se a retest of the lower % year BB, that could happen at any time but it is more likely it will happen at some point after the SPX penetrates the 1000 level. This is still in the long term undervaluation zone and I suggest that the retest will be successful and followed by a rally to the 5 year price average, roughly 1250. At that point I will open a good bottle of Bordeaux and ruminate on what comes next.

The SPX and some longer term Bollinger Bands
Click to enlarge (1600 px wide)

SPX Cycles

After todays close, the percentage of stocks above their 50 and 200 day moving averages is in thin air and suggesting to me a correction is very likely. Previously the weakness in the Percent of Stoocks Above the 200 Day Average left room for the shorter measure to remain overbought. At this point I think this is no longer the case and a 2-5 day correction is very likely

Percent of Stocks above their 50 and 200 Day Averages
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Mid day chart: SP500 Daily with cycles bars
Looks to go higher over the intermediate term.
Click to Enlarge

Don't Fight the FED

The US markets are behaving bullishly, why? Because it is in the best interest of the country to stop a financial collapse and the government is going to do whatever is necessary to assure this. All the old rules are out the window.

The lower chart goes back to 1929 and is a good indication of both how bad the recent decline was and that this may be the be the buying opportunity since the great depression. The potential to retest the February lows still exists but any such decline will be quickly retraced. This is not a 1929 scenario, that is what the mega-bears expect and are positioning for -- so it isn't going to happen.

In the upper chart, the 10% Index is again above the +500 level indicating strong upward momentum and that any correction will be followed by a retest of the current price highs. Concurring with this, we are going to retest the price highs made earlier in the year. I don't expect the following correction to be as severe and that the trend of the market is now positive and targeting the 1200-1250 zone (roughly the 5 year price average)

The McClellan Oscillator and Summation Index
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The SPX from 1929 to April 30, 2009
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