Don’t Expect the US Stock Market Mini-Bubble to Roll Over Just Yet

We have been reviewing different versions of this chart in NFTRH over the last several weeks as the S&P 500 approaches a long-standing target of 1550+.  Today it looks like that target will be hit and exceeded with ease, but last summer and right through the Fiscal Cliff nonsense in December, very few were willing to entertain such crazy talk.

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S&P 500 monthly chart

Targets are guides and objectives, not stop signs.  Although the big resistance that you, I and every other market participant on the planet see is right there and it has its implications.  NFTRH had been carrying 3 plans, but is now down to only one.

Plans A and C are now defunct because SPX did not complete a “healthy” primary correction (yellow shaded, chart below) to the low or at least mid-1400’s, at the 200 day moving averages and a ‘higher low’ to the November low.  Notice how the correction was minor (green shaded) along the lines of the December correction, which came in response to the Fiscal Cliff hysteria.  Well, the Italy Vote/Sequester hysteria barely managed to test the 50 day moving averages.

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S&P 500 daily chart

We have been tracking the series of higher highs and higher lows since last summer, which is why we remained on the bull continuation thesis; because that is what a bull market is, higher highs and higher lows.  Period.

Plan B has stepped forward and announced itself after recent corrective activity aborted quickly in another bout of greed and momentum.  Here is Plan B as laid out in NFTRH 227 (2.24.13):

Plan B

  • SPX uses the current tentative sentiment backdrop (skittish, with more Washington drama on tap) as fuel for a burst upward through the trend line on the weekly chart above [chart omitted for this article].
  • SPX is either limited at the triple top line or busts through it.  Either way, it is a suck in and the end phase of the cyclical bull.  Many bears killed in this battle on the way to ultimate victory.

Some things that bother me from a bear’s perspective are that the limit (per the first chart above) point is obvious, which means that the market may decide to do what is not obvious, and bust to new all-time highs.  These highs do not adjust for the inflation that has been baked into the system over the last decade-plus,  but the media would love to trumpet ‘S&P 500 Joins Dow, Russell 2000 and Transports in New All-Time High Territory’ none the less.

Another thing going against the bears is that the SPX appears to have higher to go in terms of a stable monetary asset, gold.

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S&P vs. Gold, monthly chart

Nominal gold is in a contrarian setup, amidst deplorably bearish sentiment by the public and gold newsletter writers and a consistently improving CoT structure.  So if gold holds its major support in the low 1500’s, the only way the SPX-Gold ratio chart above can fulfill its upside objective is for the SPX to ramp hard to the conclusion of ‘Great Suck-in 2013’.  Now, gold could do its part in launching the ratio by tanking to the 1200 support area (that is a valid measured target if support gives way) so gold, or a real and tangible monetary asset should be watched closely.

If gold holds firm, we may indeed have a final burst higher by the US stock market that “leaves many bears killed in this battle” as noted above.  When the bears are nearly extinct, sentiment and momentum have gone limit up bullish and then some event comes along and triggers an unwinding of the bubble that has been built upon confidence in Central Banker policy-making, well… pfffftttt.

But until such time, this market will need hands-on management.  In an era when global policy making, politics and mainstream media are so heavily in play you do not just ‘set and forget’ your orientation.  You check the trends in price, sentiment and fundamentals and you tweak, revise and most of all check your ego and/or pre-determined bias at the door and prepare for what promises to be a 2013 that is as exciting as 2012 was a grind.

NFTRH is doing that every week in the formal letter and during the trading week by interim updates.  I’d be delighted if you would check it out on a monthly basis.  You can cancel at any time or preferably, settle in and get comfortable with a rational method of managing complicated markets.

Our focus is often on gold because until proven otherwise, the monetary metal remains in a secular bull market.  This market also needs to be managed effectively as the last 1.5 years of successful risk management have proved.  But world markets are playing in concert and effective plans to manage a wide range of assets over the cycles is important.  NFTRH carries these plans forward and in an ongoing manner, adjusting as needed all along the way.

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