That's more like it.

It's safe to say the S&P 500 index has officially broken through the declining tops trend line.

In addition, the long-term market trend is completely bullish for the first time in 6 months.

The problem is that other indicators are quickly reverting to more optimistic values that are more typical of market tops than market bottoms, so this rally could be over not long after it's begun. Notice in particular how little volatility there's been in the past couple of weeks. No, I'm not going to jump into any bull market funds any time soon.

Breakout?

The S&P 500 index has crossed above the multi-month declining tops trend line - albeit hesitantly:

I'll be more confident about this breakout if the S&P passes 1285, the highest mark in over five months.

As for the long-term forecast, nothing has changed. The stock market is highly over-priced by historical measures. The dividend yield of the S&P 500 is a paltry 2.1%, and it simply cannot and will not remain that low forever.

Like watching paint dry

Nearly thirteen years ago on December 21, 1998, the S&P 500 index first crossed above 1200. Today it's hovering around 1250. Lately the S&P has been reluctant to pick even a medium-term direction - for the past 15 months it's been stuck between 1100 and 1350.

Trend lines blah blah blah 1175 yadda yadda 1250 whatever.

The President opposes Capitalism

In between some token nods to innovation and hard work, the Teleprompter allowed the 44th President of the United States to boldly proclaim that free market Capitalism doesn't work and has never worked. I'll let readers draw their own conclusions.



Excerpt:

"The market will take care of everything", they tell us. "If we just cut more regulations and cut more taxes, especially for the wealthy, our economy will grow stronger. Sure," they say, "there will be winners and losers, but if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And," they argue, "even if prosperity doesn't trickle down, well that's the price of liberty." ... We have to admit it's [a theory] that speaks to our rugged individualism and our healthy skepticism of too much government - that's in America's DNA. ... But here's the problem: It doesn't work. It has never worked.

Hiding cash

A deflationary resolution to the global financial crisis may, in the best case, see banks limit the amount of money that account holders can withdraw. In the worst case, large banks will go bankrupt and debt-burdened governments won't be able to bail them out, and savings accounts will be decimated as a result. Either way it might make sense to keep actual cash on hand to pay for basic necessities when the collapse happens.

The trick with hoarding cash is that a thief can steal it, so if you're going to hoard it, hide it well. A two-part post by Jeffrey Strain, "Conversation with a Burglar" (part 1) (part 2) has some savvy advice about this, particularly regarding the places one should avoid hiding valuables. The key points are these:

• Most of the places you think are good hiding spots are actually the first place a burglar will look.
• Besides a bolted-down safe, the best defense is to leave a small fraction of your stash in obvious hiding places (in a drawer or the back of a closet for example) so that a thief will think he's found most of the money and then leave quickly.

The house of cards will collapse

If Greece decides to default on its debt in an orderly fashion, or if it simply descends into chaos, it may be the spark that that finally collapses the global financial Ponzi scheme. Or Greece may ultimately agree to the EU's terms, thereby delaying and exacerbating the inevitable pain for a little longer. There are simply too many players involved and too many weak points in the system to know exactly when and where the triggering event will happen, or how the collapse will unfold, (inflation vs. deflation) but the collapse will happen one way or another.

I've made some preparations for both a deflationary spiral and hyperinflation, and beyond that I've resigned myself to the fact that I have little power to affect or predict the final outcome.

The correction isn't over yet

Just one month ago the S&P 500 index stopped a few points short of a 20% drop, thereby avoiding official bear market territory. Since then it's rallied dramatically, but now there are a couple of resistance trend lines to overcome.

A closing price above about 1330 would officially end this 19% correction.

Tease, tease, tease

A closing price below 1090 on the S&P 500 index would officially announce the birth of a bear market, but we're not there yet, despite the temporary dips below that key level. The sudden rally in the last ~30 minutes of trading today was highly suspicious - almost as if "someone" was working to prevent the official onset.

I'm really bored now

After finally falling below 1250 in early August, the S&P 500 index has been rattling around between 1220 and 1120 ever since, seemingly going nowhere.

I'd like for the market to break out of this channel one way or another and start an invest-able trend. The mid-September bear market signal would suggest that the market will decline out of this pattern, but the overwhelming pessimism of investors suggests that most of the emotional selling has already happened. Thus I have nothing useful to say about which way the market will go from here.

Schiff to Congress: GET OUT OF THE WAY!

Peter Schiff Kicks Butt.

Part 1:


Part 2:

Bear market indicated

One of the methods I use to signal that stock prices have changed from a bull market to bear market has tripped, meaning it's now likely that the S&P 500 will fall well below the 20% loss threshold of 1090 before resuming any kind of rally. However I'm not going to invest in a bear fund yet - I'm waiting for a signal that the market has reached a medium-term top within the long-term decline.

The looming collapse explained in 5 minutes

A better way to describe borrowing money from other countries is that we buy things from them with dollars, and then they turn around and use those dollars to buy our bonds. The net exchange is that other countries are making things for us in return for I.O.U.s.

No more hedging about HDGE

On February 1st of this year I noticed a new bear market ETF and immediately christened it as my new top Armageddon fund. This move might have seemed premature to some given the short track record at the time, but the performance of the Active Bear ETF (HDGE) has now exceeded even my optimistic expectations. As of today's market close (August 18, 2011) HDGE has bagged a six-month gain of 19.6%, while the S&P 500 index has lost 15.1%.

So far HDGE has not only risen during a market decline (a basic requirement of any bear fund) but it has actually gained more than the S&P 500 has lost. It may be that the fund managers have simply picked more volatile stocks rather than the best candidates for short selling, but regardless of the reason, I'm pleased with the results. HDGE remains securely at the top of my list of Armageddon funds.

Correction update

The decline of the S&P 500 index from its April 29 high is now 18% and counting, which is only 2% and 20 points away from triggering a bear market signal. This has wiped out the gains from the previous 12 months, and in the bigger picture yesterday's closing price of 1119 is a point below the closing price on April 2, 1998.

I'm very pleased to see the market decline like this, and I hope it continues. The stock market is still highly over-valued by historical standards, and even at these lower prices the dividend yield of the S&P 500 is barely above 2%. On a personal note it has been frustrating to sit on the sidelines in cash while the market continued to creep and occasionally surge upwards against all fundamental logic, so this is a psychological relief as well. My difficult choice to neutralize both bullish technical signals and bullish sentiment indicators with unprecedentedly bearish long-term economic fundamentals has, for the time being, been partly vindicated.

If this correction turns out to be the beginning of a bear market, then it was one of the stealthiest bear market onsets from the perspective of the technical methods that I use. The only analogous event I can think of is the market crash of May 1940 that came out of nowhere when Germany invaded France. Even the 1987 stock market crash sent a clearer precursor signal than the current decline. If the market turns around here against my wishes, it means ironically that the track record of my purely technical bear market prediction method will remain in good standing, so it will be a mixed bag for me either way.

Large correction & bear market watch

The S&P 500 index is hovering around 1150 as I write this, which is a 15% drop from the high point in April. That qualifies as a large correction. An official bear market requires a 20% drop, which would occur at an S&P price level of 1090.

Back near 1250

Here we are again. The S&P 500 index has closed at 1254, right at the floor of its 2011 range.

If it closes much lower than this in the following days, then the lower support level near 1250 will be officially breached.

However, stock market sentiment is solidly pessimistic right now, as you can see in much of the financial news this evening. This is the lowest closing price all year, and the market has fallen below the 200-day moving average, and that's apparently caused a slight panic. Neither of those stats means anything of course, but it sure makes for exciting, breathless news. Honestly, I wish this were the start of a bear market so that I could safely ensconce my money in some bear funds - but that's just another example of market pessimism.

Pessimism more often than not translates to increasing prices, so my guess is that the market is poised to bounce again. I'm staying in cash for a little longer at least. If the S&P closes below 1240 or so first, then I'll be proven wrong about the bounce, but that still won't be an official bear market signal.

In the more distant future, global financial collapse and/or hyperinflation still looms, particularly now that the U.S. government has decided to add trillions of dollars to our national debt. The timing and form of the collapse will be as much a political decision as an economic one, so it's impossible to predict what will happen and when.

Still not a rally

Today the S&P 500 index closed at 1305, a level which has acted as a quasi-price floor for much of 2011, with the exception of the corrections in March and June.

The S&P has been in neutral for most of 2011, having yet to rise above the April 29 high of 1364, or to pass below the absolute floor of 1255. This is a narrower-than-average trading range for a seven-month period. Surprisingly, sentiment is also neutral right now despite the news of a potential government default, so I won't attempt a short-term stock market forecast.

I hope all good folks out there have made preparations for national/global financial turmoil. Even if Congress and the President reach a stopgap budget agreement by August 2, the long-term prospects for national solvency do not look good.

S&P stays above 1250, but is it a rally?

As predicted from the extremely high pessimism in the market, the S&P 500 index hasn't yet crossed the 1250 threshold. In fact the index hasn't even closed below 1265 during this recent dip, and is now rising towards potential overhead resistance in the form of a declining tops trend line:
Sentiment is still very pessimistic, so my guess is that the S&P will rise through this trendline and officially start a new rally.

S&P 1250 is key

The S&P 500 index has been declining towards two trend lines - one long term rising support line which goes back to the March 2009 low, and a short term support level at 1257.

Long term:
Short term:
These two trend lines have basically met at the same price level now, meaning that if the S&P declines through 1250, it will simultaneously violate two supports, leaving the door open to a large continuing decline. However, since sentiment is quite pessimistic right now, my guess is that the stock market will bounce off of these support lines and continue the rally. Time will tell.

Peter Schiff on the inevitable collapse

He's spot on that raising the federal debt ceiling will just delay the collapse and make it worse to boot. Unfortunately few politicians want to be held personally responsible for firing federal employees and cutting payments to retirees and unemployed workers, so it's doubtful that there will be a controlled rollback. Schiff is predicting that the ultimate outcome will be hyperinflation - in other words, that the Federal Reserve Bank will keep printing money indefinitely.