Subtitle: Hope Springs Eternal… Until it Doesn’t!The Bulls are getting very ballsy lately… some would event say reckless… pushing the S&P 500 back up over the 200 simple day moving average and nearly taking the 50 day SMA with it…
But wait…
Is that a freight train I hear?
Like an 8000 hp Union Pacific steaming down the tracks the second half of 2009 (H2) is fast drawing neigh and with it a reemergence of uncertainty and a much needed dose of reality and of course… lower stock values.
“Why?!” you say… “I thought the decline was over… taken care of handily by those tremendous stewards of our great economy (the world’s greatest you know!)… the elites of the Federal Government and the Federal Reserve System…”
You go on... “What we experienced last fall was just a simple financial panic… the ripple effects of the collapse of Lehman… it’s over… there is nothing more to see here… so!… now is the time to bargain shop!... pick up some deals!... roll like Warren Buffet!”
Ahh… such simple thinking doth rule the minions… yes… that’s right everyone… It’s time to take action… please do jump in now… the water is fine… go right ahead… if you act now you can brag later and isn’t that what it’s all about anyhow?
If the decline in stocks started in October 2007 and ended at the low set in March 2009 it would be one of the shortest and most typical bear market declines on record.
This would sort of seem anti-climactic given that categorical record of the decline across a domain of virtually every macro-data series showing historic levels of decline and stress.
Yet… from another point of view… one that takes as fact that the decline started NOT in October of 2007 but way back in 2000 with the commencement of the “dot-com” bust (probably more aptly termed the “unwind of the 90s collective delusion”) we are fully embroiled in our own “lost decade… or two”.
So it really comes down to how you choose to look at things… If you think the “recovery” that “occurred” between 2002 – 2007 was real and not simply manufactured on the back of probably the most unusual credit cycle in history… double down!
Maybe you think the Feds can manufacture another phony boom… that’s always possible… yet with no basic asset class to target (like housing….) , no fire-hose of consumer credit and the economic base falling farther and farther… pretty soon these attempts at faux expansions will lose effectives… just fluff the populace from miserable to malaise… but no farther.
So... we are headed back to the lows…
As regular readers know, I have been following along the stock market decline for well over a year now with this recurring “Twin Peaks” post whereby I simply charted some very basic technical analytics (somewhat ala the amazing Louise Yamada mixed with a couple of my own inventions) which compared the underlying average movement of the current S&P/500 index to its performance during the unwind of the “dot-com” collapse.
Be sure to study the charts well as they present several different ways of capturing market volatility and together compare past market performance to what we are seeing today.
I will continue to post the comparison to the “dot-com” era bear market for posterity but now that we have broken well through the 2002 lows all technical similarities going forward have ceased… we are firmly in uncharted territory as the two bust eras have now become one.
The “Percentage Up-Down” chart clearly shows that we have just entered a period of REAL volatility BUT also leads one to believe that we may have a long way to go in this market shakeout.
The “Up-Down Daily Closings” chart seems to indicate that although we have seen increased volatility and significant declines, we have yet to match the distribution of daily up closings and down closings (inverted red line).
Study the following image (click for very large and clear version) of the S&P 500 index from 1995 to today then read below for the technical blow by blow.
What follows below is now just maintained for old times’ sake… the second peak was obviously real and this series of posts identified it roughly a year ahead of time.
Now that we have entered effectively into uncharted territory, we are at a loss for historical comparison.
THEN (1998 – 2000 Top)
- A. October 1998 – S&P 500 gives early warning sign by crossing its 400 day simple moving average (SMA). Notice also that the 50 day SMA breached the 200 day SMA.
- B. October 1999 – S&P 500 gives a second signal by crossing its 200 day SMA after a solid twelve month expansion. 50 day SMA touches the 200 day SMA.
- C. Three prominent but decelerating peaks set up the top.
- D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
- E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
- F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
- G. 200 day SMA crosses 400 day SMA. (Cross of Fiery Gruesome Death)
NOW (Today’s Top)
- A. June 2006 – S&P 500 gives early warning sign by crossing its 400 day SMA. Notice also that the 50 day SMA breached the 200 day SMA.
- B. March 2007 – S&P 500 gives a second signal by falling near its 200 day SMA after a solid nine month expansion. 50 day SMA similarly depressed.
- C. Three prominent but decelerating peaks set up the top.
- D. Between second and third (last) peak S&P 500 index breaches 200 day SMA. After the final peak S&P 500 index breaches the 400 day SMA.
- E. 50 day SMA heads down fast and crosses the 200 day SMA. (Cross of Death)
- F. 50 day SMA crosses 400 day SMA. (Cross of Far More Death)
- G. 200 day SMA crosses 400 day SMA. (Cross of Fiery Gruesome Death)
- H. Down Down we GO! (Uncharted Death)
- I. Bh Bye! (Fodder for the Sucker-Grinder)
- J. S&P 500 Breaks through 200 day SMA... decline over?!... fat chance!
