As most observers of the US stocks markets are quite aware, we are now touching the 13-year resistance point on the S&P 500 at or around 1550. This approximate level has been my target for some time, as readers of this blog or my books know. The last peak of 1576 (intraday), seen in 2007, did take out the prior peak of 1553 (intraday) of early 2000, as noted on the long termed chart above. As you will observe, we are well into a “phase II” bull market, and holding above the 200 day MA (green line). Thus, the trend is still favorable, and the market is not forming a top at this time. If the market can significantly penetrate this level and remain well over the former highs for several weeks, a new bull market may have begun. But — we are testing a significant point of resistance that has, twice over the past 13 years, resulted in two major tops (and subsequent bear markets). It would be imprudent to state with too much confidence that the markets will continue their bull run at this juncture, and yet it is also imprudent to declare the end of the bull, given the current uptrend.
It should be noted that during a secular sideways market, markets can and will briefly overshoot the previously established resistance points. Check my 100+ year chart presented here: https://www.valuetrend.ca/?p=1874 – note the overshoots in previous secular sideways markets. Its entirely possible that the S&P could get into the 1600 area this time around before a potential peak. The US stock market is at a significant juncture right now. The line in the sand at the upcoming 13-year resistance level has been drawn, and an epic battle between bulls and bears is about to begin. Will U.S. markets break and remain over their old highs, or will it follow the 5-year cycle (mentioned in prior blogs) and fail again? Time will tell.
Remember, first and foremost we must be disciplined in our approach to analysis. As a technical analyst, I am long the market because the trend is up. But I am also aware of the current risks, including the obvious technical resistance mentioned above – not to mention some of the other factors mentioned in prior blogs. My current strategy is simple: I have been gradually reducing beta allowing me to continue to participate in the markets – hopefully with less risk. I am also slowly raising cash, with about 20% in my equity model right now. That’s my nature—and that is why ValueTrend uses the tag line “Limit your risk. Keep your money”. I am also ready to raise further cash by selling some index ETF’s I have large positions in in the coming weeks – if for no other reason than the seasonal pattern for market weakness after the spring. This defensive attitude allowed me to be amongst a small group of Portfolio Managers who preserved their clients wealth during the 2008-2009 crash. Remember, bulls make money, bears make money, but pigs get slaughtered – as the saying goes.
Later this week, I will be taking a look at some defensive strategies that should allow us to “have our cake and eat it too”. Ultimately, we want to participate in the market strength while it lasts, yet maintain a strategy that does not rely fully on the hope of a new bull market emerging. I’ll try to present a couple of ideas on Thursdays blog that might allow us to accomplish that goal.
Another excellent blog this morning, Keith.
I am struck by the volumes in your chart. Two things stick out in my mind. First, the volumes have not returned to the earlier lower levels of pre-2006 and second, there may well be a serious downturn on the way but a general rise in volumes has not yet begun as there was in 2006. Here is a chart similar to yours with 2 year and six month moving averages added. The six month MA moved above the 2 year MA at least a 18 months ahead of the start of the downturn in 2007. Is that something to watch?
Yes, volumes have been unusually low throughout this bull market. Strange.
I dont think the MA movements you refer to are a great indicator–actually, while I dont mind using a 200 day MA for long term trend following, I dont use them for trading signals. Same with the shorter ones–they are a secondary consideration to me. I’m a meat-and-potato chart formation guy first and last!
Thanks, Keith. I look at too many things I think. Most I don’t use as trading signals, volumes especially although Mark Leibovit has made a good living at it for some time. I find them kind of unreliable as I tend to be an investor not a trader. I like trend lines mostly. But I’m always looking for ways to improve and I find your stuff very informative.
S&P seems to be the laggard with so many other sectors just breaking out of 10 years bases. This top may be what the late magician Doug Henning used to say “It’s only an illusion”