The similarity between the current weekly chart and 2008 continues.
The index is now retracing to test support at 1220, in a similar fashion to support at 1380 in 2008. Failure of support would be a strong bear signal, but confirmation would only come if primary support at 1100 is broken.
* Target calculation: 1100 – ( 1300 – 1100 ) = 900
Long-term government bonds have gained 11.5 percent a year on average over the past three decades, beating the 10.8 percent increase in the S&P 500, said Jim Bianco, president of Bianco Research in Chicago.
The combination of a core U.S. inflation rate that has averaged 1.5 percent this year, the Federal Reserve’s decision to keep its target interest rate for overnight loans between banks near zero through 2013, slower economic growth and the highest savings rate since the global credit crisis have made bonds the best assets to own this year.
via Say What? In 30-Year Race, Bonds Beat Stocks – Bloomberg.
Does this mean we should all rush out and buy 10-year Treasury Notes yielding less than 2.20 percent? I think not. The potential for further capital gains from lower yields is far outweighed by the risk of capital losses from future rate rises. And there are plenty of low-to-medium risk alternatives that will perform better than 2.20 percent.
Several weeks ago, when asked what it would take to reverse the bear market, I replied that it would take 3 strong blue candles on the weekly chart followed by a correction — of at least two red candles — that respects the earlier low. We have had three strong blue candles. Now for the correction.
On the S&P 500 expect retracement to test support at 1200 or 1250. Respect of 1250 would signal a strong up-trend, while failure of support at 1200 would warn of another test of primary support at 1100. A trough on 13-week Twiggs Money Flow that respects the zero line would also indicate strong buying pressure.
* Target calculation: 1225 + ( 1225 – 1100 ) = 1350
Dow Jones Industrial Average weekly chart displays a similar picture. Expect retracement to test support at 11500. A peak on 63-day Twiggs Momentum that respects the zero line would be bearish — warning of continuation of the primary down-trend.
* Target calculation: 11500 + ( 11500 – 10500 ) = 12500
The Nasdaq 100 is testing resistance at 2400 — close to the 2011 high. Breakout would signal a primary advance to 2800*, while respect would warn of another test of primary support at 2000. Bullish divergence on 13-week Twiggs Money Flow has warned of a reversal for several weeks.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
The S&P 500 pulled back from resistance at 1250 and is headed for a test of short-term support at 1200. Failure would test primary support at 1100, while breakout above 1250 would signal an advance to 1400*. Rising 21-day Twiggs Money Flow continues to indicate secondary buying pressure.
* Target calculation: 1250 + ( 1250 – 1100 ) = 1400
Dow Jones Europe index also ran into resistance at 250, bearish divergence on 21-day Twiggs Money Flow warning of short-term selling pressure. Reversal below 230 would test primary support at 205/210, while breakout above 250 would signal an advance to 290*.
* Target calculation: 250 + ( 250 – 210 ) = 290
Early May 2008, the S&P 500 index recovered above resistance at the former primary support level of 1400 on its second attempt. 13-Week Twiggs Money Flow broke back above zero, indicating secondary buying pressure. Breakout was followed by two pull-backs in May. The first made a false break below the new support level; the second followed through, commencing a 50% decline to 700.
We are now at a similar watershed. Expect retracement in the week ahead to test the new support level at 1250. Respect of support would strengthen the signal, but beware of any penetration. Follow-through above 1300 would signal that the (immediate) danger is over. Until then, consider this a bear market.
* Target calculation: 1250 + ( 1250 – 1100 ) = 1400
Dow Jones Industrial Average followed through on its breakout above the 10600-11700 trading range but expect some resistance at 12000. The index looks set for a decent rally after narrow consolidation below resistance at 11700. Target for the breakout is 12600*.
* Target calculation: 11600 + ( 11600 – 10600 ) = 12600
Yields on 10-year Treasury notes also rallied as funds flowed back into stocks, but we are not yet out of the woods.
There is bound to be a relief rally when EU leaders announce details of their rescue package — followed by a pull-back when traders figure out the costs involved. The danger is that Germany and France do an “Ireland” and rescue the banks but put themselves at risk. Both have public debt to GDP ratios close to 80 percent and it would not take much to push them into the danger zone. If they are down-graded then the kids are home alone — there will be no adults left in the room. A down-grade would raise their cost of funding and place their own budgets under pressure.
The S&P 500 is also testing resistance at 1260; breakout would confirm a Dow signal. 13-Week Twiggs Money Flow is rising but no bullish divergence means this could be secondary (medium-term) buying pressure.
* Target calculation: 1120 + ( 1220 – 1120 ) = 1320
Nasdaq 100 index displays an ascending broadening wedge as it approaches resistance at 2400. The ascending wedge is a bearish pattern: Bulkowski maintains that it breaks out downward 73% of the time. Target would be the base of the pattern at 2000. Bullish divergence on 13-Week Twiggs Money Flow, however, indicates strong buying pressure. Breakout above 2450 would signal a primary advance to 2600*.
* Target calculation: 2400 + ( 2400 – 2200 ) = 2600
A monthly chart of the S&P 500 index gives a clearer picture. Although the Nasdaq is advancing strongly, the S&P 500 is stuck below its long-term trendline. Note the similarity to March-May 2008 rally. Breakout above 1250 would be a bullish sign, similar to the May 2008 breakout above 1400, but retreat below the former resistance level (1250) would give a strong bear warning. Likewise, a 63-day Twiggs Momentum peak below the zero line would signal a strong primary down-trend.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
Dow Jones Industrial Average is testing resistance at 11700. Breakout would warn of a primary advance, but the market is prone to false signals because of excessive volatility and it would be prudent to wait for confirmation. Respect of 11700, or a false break above 11700, would re-visit support at 10600.
* Target calculation: 11000 – ( 12000 – 11000 ) = 10000
The S&P 500 is similarly testing resistance at 1230 on the weekly chart. Breakout would signal an advance to 1350, while respect would indicate another test of 1100. Breakout above the declining trendline on 13-week Twiggs Money Flow suggests nothing more than a secondary reaction (bear market rally). See the monthly chart.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
The Nasdaq 100 index, however, broke through 2350 and is headed for its July high. Bullish divergence on 13-week Twiggs Money Flow indicates reversal to an up-trend. Breakout above 2440 would confirm, offering a target of 2800*.
* Target calculation: 2400 + ( 2400 – 2000 ) = 2800
I say this rather flippantly as we are in the middle of a bear market, and I do not believe we are ready, but a reader asked what it would take to signal a bull market. My answer: three decent blue candles on the weekly chart followed by a correction of at least two red candles that respects the preceding low. The weekly chart of the S&P 500 index displays a blue candle with a long tail, signaling buying support. That would qualify as candle #1.
* Target calculation: 1100 – ( 1250 – 1100 ) = 950
There is no supporting divergence on 13-week Twiggs Money Flow to signal a change in the underlying selling pressure. Reversal to an up-trend is unlikely but would take a rally of at least 3 blue candles to break resistance at 1250 followed by a correction that finishes above 1100 — and re-crosses 1250. What is more likely is a failed attempt or false break at 1250 followed by penetration of support at 1100, signaling a decline to 1000/950*.
After the nasty downside probe today, there are layers of buy stops above current price levels. If price worked high enough, the stops would be triggered and an all out rally could play out. Anything coming out of the Eurozone that appears to be either stimulative or that appears to push an ultimatum out on the time spectrum will be viewed as positive.
Often news and price action play out together at key support/resistance levels and it would make sense that some form of announcement will be made when the S&P 500 price is sitting right at a long term support level.
via Is the SP 500 on the Verge of a Rally? | JW Jones | Safehaven.com.
That would be a bear market rally rather than a reversal.
