Long Term – Monthly Bars Chart

The first chart here is the monthly bars chart.  In my last review of this timeframe chart, two months ago, I said, “So, on this timeframe, the volatility of the market is contained in this very wide trading range between S2 Cal. and R2.  Nothing more can be said in this timeframe until price eventually breaks out of this range.”  Now we see that price has broken out above both R2 and R1.  This bodes well for continued upward movement, going on to challenge the 2011 high.  Looking at this chart more broadly, from the 2009 low we see that in 2011 we established both a higher high and a higher low, confirming that since March of 2009, price has been, and continues to be, in a long term uptrend.  If price goes on to break above the 2011 high, this will continue the uptrend.

Short Term – Daily Bars Chart

The second chart here is the daily bars chart, updated through yesterday.  There is a TopFinder (purple curve) running from the December 19th low, and it is essentially done now.  So, this accelerated sort term uptrend is over now, and we should expect at least some consolidation before price decides what new direction to go in.

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The chart here is the intermediate term weekly bars chart.  In my mid December post (QV), I said that an overal uptrend was emerging from the fog, mainly because the chart was showing a higher high and a higher low.  Now we see that the market has come right up to the previous high, amidst a cluster of resistances.  So far, it has closed above “Left R1″ and Monthly R2.  It poked above the horizontal resistance marking the previous high, but retreated to close below it.  Not far above is Monthly R1.  So, I would say that price needs to break out above this cluster of resistance and close above Monthly R1 before we can be sure that an uptrend is still in progress.

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The Year

One word describes how the S&P 500 ended – Flat.  It opened the year at 1257.62 and closed at 1257.60.  That’s quite a statistical oddity!  At the high of the year it was up 9% and at the low, down 15%, but ended flat.

Very Long Term – the quarterly bars chart

The chart here is the quarterly bars chart from the early 1980s.  Let’s talk through the major moves shown here.

•  The giant accelerated very long term uptrend powered by the baby boomers launched in mid 1982 and finally topped out in the first quarter of 2000.  The green support curve starts at the beginning of this uptrend, as does the TopFinder, TF1, which is fit to the 1998 pullback.  That uptrend was a 1,420% gain.

•  The tech bubble burst in 2000, resulting in a -50% hit, down to the end of 2002.

•  The recovery ran from the end of 2002 to the end of 2007, resulting in a 105% gain, topping out just about where it was at the tech boom peak in 2000.  The TopFinder TF2 tracked this accelerated uptrend perfectly.

•  The crash of the Great Recession took the market down 58%.  But in March of 2009 that crash came to a screeching halt and turned around exactly at the green support curve, one of those amazing performances by a Midas support curve.

•  The accelerated uptrend that started in March 2009 looked like it was going to be a repeat of the one that ran from 2002 to 2007, so I fit a TopFinder, TF3, to the pullback of Sept. 2010, as well as starting the S2 of that uptrend, the second thin green curve, from the same date.  However, the latest two price bars of this chart have clearly broken below S2, showing that this accelerated uptrend has ended.

Where do we go from here?  The only firm conclusion we can make is that we’re not having a strong uptrend up to the 2000 high.  It is possible that after this pullback of the last two quarters an uptrend could start.  But clearly, we’re in a different mode now from the two big cycles that started in 2000.

Looking at this chart from the mid 1990s to the present, we see that in March 2009 we had a lower low, and in June 2011 a lower high;  these two facts are an indication that the long term trend has turned down.

Overall, though, the most remarkable feature of this chart since the 1990s is the cycling – absolutely enormous price moves up and down, -50% and +100%, several times.  We’re in a huge trading range defined at the top by the peak in 2000 and at the bottom by the S curve launched from mid 1982.

Since price is cycling, oscillators are appropriate to employ.  My two favorite are the RSI (top pane) and the MACD (bottom pane).  Quite remarkably, both are showing strong negative divergences as indicated by the downward slopes of those two red lines.  These are implying future downward price movement, consistent with the fact that we’ve experienced a lower low and a lower high.

My conclusion:  We’ve been in a huge cycling range for the last 12 years.  The current indications are somewhat negative for the breakout from this range.  If that does happen, it would be dire indeed for both the market and the economy as a whole, since that would put the S&P below 700.  I think that, even before we got that low, the Federal Reserve would step in with a new round of quantitative easing, QE3, which would reverse the market’s decline and set us off on a major new uptrend.

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In this mid-month review, I focus on the weekly and daily bars charts.  My next post, at the end of this month, will be at the end of both the quarter and the year, so then I’ll review the monthly and quarterly bars charts.

Intermediate Term – Weekly Bars Chart

The first chart here is the weekly bars chart.  In my last post, I observed that extreme market volatility was scrambling the charts, making it difficult to identify any trends.  But now, I think I’m beginning to see some hints that trending is starting to emerge from the fog.  The market is still being confined between Left R1 and Left S1, as described in my last post, but look at what’s been happening over the last two months; we’ve seen a higher high (Oct. 28) and a higher low (Nov. 25), which is the traditional definition of an uptrend.  For confirmation, we’ll need to see the next high be above Left R1.  If that happens, we’ll be in a strong bull market in this timeframe.

Short Term – Daily Bars Chart

The second chart here is the daily bars chart.  Although the downward pressure from Price Projection has ended (see blue bars and last post), the market did sell off over the last two weeks.  However, in the last three days, it found firm support at the bolded S1 that was launched at the beginning of October.  And just yesterday, price started to lift from that support.  If this continues, we will have established a higher low, and thus may be starting an uptrend.  Overall, though, the appearance of this chart is still rather chaotic, still “in the fog”, so to speak.

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This is my month-end review of the S&P 500, where I analyze the monthly bars chart, as well as the weekly and daily ones.

Over the last few months, the turmoil in the Eurozone, along with occasional economic news in the U. S., both positive and negative, have roiled the markets with unusually heavy volatility.  As this goes on, the volatility, which starts out being evident on the daily bars chart, percolates up into the longer timeframes, becoming noticeable on the weekly and now even the monthly bar charts as shown below here.  (At the end of this month, which will be the end of the quarter, I’ll show the quarterly bars chart, and then we’ll see if volatility has gotten that far up, or whether some inference of very long term trend may still be visible there.)  Under these conditions, it has become meaningless to try to infer direction of the market based on current charts, so I will no longer even try to do that until volatility calms down and the fog clears.

Under these circumstances, what if anything can Midas analysis do for us?  Remarkably, what is still visible amidst all this chaos, is that when the market spikes and abruptly turns around, as it has been doing all too often these days and weeks and months, we can still identify the Midas S/R levels at which these turns take place.  We can’t predict in advance at which level the turn will happen, but price does pick out one of these levels for its turn virtually every time.  Ahead of time, we try to populate our charts with these levels, both above and below the current price, so we can see which one price chooses for its turn.  Sometimes, though, it takes some back-analysis after a turn to identify the curve at which it happened.  This is the spirit in which I am providing the analyses below here.

Longe Term – monthly bars chart

The first chart here is the monthly bars chart updated through the end of November.  Comparing this to the chart I showed at the end of last month, you’ll see that I’ve done a calibration of the S2 curve (bold green), which I should’ve done back then, now calling it S2 Cal. The calibration is done at the July 2010 low, as marked by the little green arrow.  (The procedure for calibrating a Midas S/R curve is so important that I devoted a whole chapter to it in our book, q.v.)  This means that, going forward from July 2010, this curve is very significant.  Now we see that last month’s price bar only slightly perforated this curve before jumping up sharply.  So, I think it’s valid to observe that this curve did provide support last month.

Now, look at the downturn that started at the peak last May.  I’ve launched R1 from that point.  Two months later, there was a small pullback in price, so I’ve started R2 from that point, and we see that R2 perfectly captured (resisted) the top of October’s bar.  November was fully contained within October’s range.  So, on this timeframe, the volatility of the market is contained in this very wide trading range between S2 Cal. and R2.  Nothing more can be said in this timeframe until price eventually breaks out of this range.

Intermediate Term – weekly bars chart

The second chart here is the weekly bars chart, updated thru yesterday.  To try to get some clarity around the volatility here, I’ve applied a technique that I describe in our book in the section called, “Special Starting Points – Left Side”, q.v.  (p. 50).  This produces the two bold curves here, “Left R1″ and “Left S1″.  So far, these two curves are containing November’s volatility.

Short Term – daily bars chart

The last chart here is the daily bars chart, updated thru yesterday.  We see that the volatility of the last few weeks is being contained by R1 and the level of the “Left S1″ curve from the weekly bars chart. The blue bars and dashed vertical line illustrate the application of a technique developed by Richard W. Arms Jr. called “Price Projection”, which I describe at length in our book in the first part of chapter 7, q.v.  On our daily bars chart here, it is showing that, starting Nov. 8, there is downward pressure on price, which won’t be relieved until cumulative volume (horizontal motion) reaches the dashed vertical line.

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Although the middle of the month isn’t for two more days, I’m doing this post now so that it is at the end of a week and the weekly bars chart will have a complete bar for its most recent bar.

Short Term – Daily Bars Chart

The first chart here is the daily bars chart.  In my last post I noted that this chart was showing a robust uptrend, with a TopFinder that was about 3/4 done.  We see here that that TF has completed, and indeed the uptrend itself topped out two weeks earlier.  Price then fell back, but found quite remarkable support at the R1 curve.  Here is another one of these awe-inspiring performances by a Midas curve.  In the midst of all the volatility in the market, price came down to and smartly bounce up off this well established curve, and has remained above it.  Price is also breaking the resistance launched from the top of this last trend, so, even though price is in what looks like a sloppy sideways consolidation, by holding support and breaking resistance, it’s giving some indication that the follow-on move will probably be to the up side.

Intermediate Term – Weekly Bars Chart

The second chart here is the weekly bars chart.  In my last post, I noted that price was in a strong new uptrend.  Now we see that over the last two weeks there was a minor pullback, so I’ve fitted a TopFinder to that pullback, and it’s currently 63.5% done, with its projected end at the horizontal location of the dashed vertical purple line.

Overall, even though the ongoing European financial crises are daily roiling the market, we see that Midas analysis continues to give meaningful tracking information to what’s going on.

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Intermediate Term – The Weekly Bars Chart

The first chart here is the update of the chart in my last post, expanded.  In that last post two weeks ago, it was quite unclear to me what was happening.  But now we can see that price broke out from its consolidation very strongly to the upside, blasting right through three significant resistance levels.  Now it’s clear that a very strong uptrend started in early October with the bounce up from the old S1 level.  We can get a more detailed look at this uptrend on the next chart.

Short Term – Daily Bars Chart

Here we see clearly the robust uptrend we’re in on this timeframe, which started on Oct. 4th with the bounce off of Weekly S1.  There was a minor pullback on Oct. 20th, and I have fit a TopFinder to that pullback which is now 3/4 done, projected to end at the horizontal location of the dashed vertical purple line.

Long Term – Monthly Bars Chart

The last chart here is the monthly bars chart.  The size of October’s candle shows that volatility has really increased.  However, even though this is a tall white candle, it doesn’t change the observation that, on this timeframe, the market is still in a downtrend that started at the end of May.  Price is still holding below resistance while starting to break supports, and that’s the Midas definition of a downtrend.

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The Weekly Bars Chart – Stair-stepping Down With Increased Volatility

The chart here is the updated weekly bars chart from late 2008.  In mid August of this year, the market started a wide sideways consolidation, bounded on the bottom by Old R4 and on the top by the light gray horizontal line that is defined by the high of November 2010.  Two weeks ago, price broke sharply below Old R4, but then bounced strongly at Old S1, the primary support curve launched from the major market bottom in March of 2009.  And last week, price roared right up to the top of this consolidation range.

It’s very difficult to categorize what’s going on now.  If the break below Old R4 signaled the start of a new downtrend out of the consolidation, then I would not have expected price last week to come all the way up to the top of the consolidation.

There are two probable interpretations of what’s happening.  The first is that two weeks ago’s bounce off Old S1 is the start of a new uptrend.  If so, then expect to see price break up out of this consolidation top.

The second interpretation is that price is indeed starting a new downtrend but with greatly increased volatility.  And if this second one is true, then we’d expect to see price turn down either from where it is right now or from the next resistance level above this, and then go on to break below Old S1.

I’m leaning towards the second interpretation because both the monthly and the quarterly bars charts are suggesting that we’re already in a new downtrend.  That’s why I’ve set up those six levels below the consolidation range, which come from support curves on the monthly and quarterly bars charts, along with a significant horizontal level (gray line), and the blue dotted line which is the 23.6% Fibonacci level from the monthly bars charts.  These levels are the ladder of supports, and one should look for price to go on stair-stepping down through this ladder, forming minor pullbacks at some of them as it goes down.

Of course, I could be wrong.  The first interpretation may be correct; we may be at the beginning of a new uptrend.  If so, we’d expect price to stair-step up through the resistance levels above the consolidation range.

I wish I could be more definitive, but the current state of the market simply isn’t clear.  Furthermore, as I’ve said so many times before, I don’t predict what will happen, only describe what is happening right now.  And right now, it’s just not clear what’s happening.

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Since this is both the end of the month and the quarter, I’ll concentrate on the monthly and quarterly bars charts, especially the quarterly one.  In the two weeks since my last update here, the weekly bars and daily bars charts have changed very little, still in basically sideways consolidations.

Long Term – Monthly Bars Chart

The first chart here is the updated monthly bars chart, and there isn’t much more to say about it than I said a month ago.  The latest candle is still just sitting above the Old R4 curve.  So, let’s move on.

Very Long Term – The Quarterly Bars Chart From 1980

The second chart here is the quarterly bars chart from 1980 through yesterday.  Unlike all of my other charts in this blog, which are equivolume, this one is time-based, and the Midas curves on it, including the TopFinders, are all calculated with every volume datum set to 1 instead of using the real volume data.  In chapter 6 of our book, I go into a lengthy exposition of why it is necessary to make these changes when analyzing the very long term timeframe, and am not going to repeat that here.

Early 1982 was the beginning of the monstrous Baby Boomer Bull Market that ran until 2000.  Notice that TopFinder TF1 tracked it beautifully, ending within the the bar after the top.  After the Internet bubble burst in 2000 and the market crashed down to its low at the end of 2002, a powerful new uptrend brought it right up to the 2000 top again.  See how TopFinder TF2 tracked that perfectly.

Next the Great Recession started in 2007, taking the market even lower than it was in 2002.  Now notice the most remarkable thing:  That green curve is the Midas support curve launched at the beginning of 1982 bull market.  As the market came crashing down in 2009, it stopped exactly at the support curve and bounced up!  If you’ve been reading our book and following this blog, this sort of behavior should no longer be a surprise to you.  I’ve been at this for over 16 years, yet every time I see this happen, it still raises the hairs on the back of my neck.  The Midas method works so well it’s almost spooky!  When the market started to move up in the second quarter of 2009, absent the Midas method you would’ve had no reason to trust that a real bottom was in.  But, seeing the bounce off such a major Midas support curve would’ve told you.

In April of 2009, the market started another powerful uptrend, looking very similar to the one that started in 2003.  TopFinder TF3 is tracking it, and it is only a bit more than half done, projected to end at the dashed vertical purple line, which could easily take it up above the 2000 high.  At the end of last year, the market broke strongly above those two major red resistance curves, attesting to the strength of this uptrend.

But in the second quarter of this year, the market stalled, and this third quarter saw a dramatic pullback, which closed below both the S2 tracking this trend and TF3.  Closing below the latest S curve is the Midas definition of the end of a trend.  Therefore, I must conclude that the uptrend that started in April of 2009 is over.

Why did this latest uptrend end so prematurely?  I think it is certainly no coincidence that the top in June happend exactly at the end of the Fed’s QE2 program.  The money from QE2 didn’t go into helping the economy, it went straight to the stock market.

Very Long Term – The Quarterly Bars Chart From 1950

Now let’s look even longer term.  The third chart here is the quarterly bars chart from June of 1950, which is the earliest date for which we have daily data on the S&P 500.  This is just a few months after the 1949 beginning of the huge Eisenhower Era Bull Market that ran up to 1972.  The lowest green Midas S curve on this chart runs essentially from the beginning of that bull market, and is analogous to the curve started in 1982.  When the market swooned over 40% in the recession of the 1970s, it came down and supported right on that lowest curve, another hair raising performance of the Midas method.

It’s simplistically tempting to continue the analogy, and say that, after we work through some short term difficulties, we’ll be off to another major very long term bull market.  But, there are darker, more ominous clouds on the horizon.  This chart from 1950 is part of a much longer term pattern going back many decades further.  We have monthly price data on the S&P 500 going back to 1871, and in our book I have done a thorough analysis of it.  What it shows is that there are very long term, very deep cycles, and at the present, the market has not yet gotten to the bottom of the current cycle.  This analysis is too much to put in a blog post, so I encourage you to read our book.

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Short Term – Daily Bars Chart

In my last post here, regarding this chart, I said, “But yesterday, it came to a halt right at R1, with a rather long upper whisker on that candle.  This could well be indicating a pause, a minor pullback, in this uptrend.  If price does come down a bit in the next few days, I’d watch for support and a turnaround at either R3 or S2, or maybe even as low as S1.”  Well, price certainly did come down, and further than the three supports I mentioned.  It went down one more, close to the level of the S1 curve from the weekly bars chart.  And in the last four days price has turned around and is now strongly moving upwards.

Above the present value of price, there is R1 as well as five levels I’ve marked, copied over from curves on the weekly and monthly bars charts.  Any one of these could be the level of the next turn down.

Since early August, what we see on this chart is a succession of higher highs and higher lows, with large swings of price in between.  So, this is an uptrend from August, but not a strong one, and accompanied with large volatility.

Intermediate Term – Weekly Bars Chart

The second chart here is the weekly bars chart.  The uptrend that started with the dramatic bounce up from Old R4 in early August is continuing, holding comfortably above the new S1 curve.  But it’s certainly not a robust up trend, kind of meandering along, lacking conviction.  So, we must be ever on the alert for it to top out and turn down, which is why I’m careful to include the four curves above the current price, one S curve and three R curves, any one of which could well be the level of the end of this lack-luster up trend.  The trend could go even higher, up to that top red line segment, which is the level of the R curve from the monthly bars chart.

There’s another possibility for this lack-luster uptrend.  If it continues to bounce along above its S1 for a bit more, then this will qualify as a Foothill Pattern, which Paul Levine, the founder of the Midas Method, identified, and which I described in our book.  The Foothill Pattern is often the precursor to an explosive uptrend.  We should be on the alert for a one bar (one week) very strong up move that goes far above the current range of this up trend and breaks through at least one of the resistance levels I’ve marked on this chart.  That would be the entry signal to get on board a new, very strong up trend.

The lowest line segment on this chart, down at 952, marks the level of the newest S1 curve on the quarterly bars chart.  The end of this month will be the end of the third quarter, so I will spend considerable time in my next post exploring the quarterly bars chart.  Already I can see that it’s going to be telling us some very significant things about the long and very long term health of the stock market.

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