Wednesday, March 26, 2008

Slow decline

The S&P 500 has been in a declining channel pattern since mid-January.


The first break outside of this channel will probably indicate the direction of the next market trend. I'm predicting that the S&P index will eventually drop to 940, (30% lower than today) so any upward break would probably be temporary. A downward break on the other hand would likely herald a short and steep decline to new lows.

9 comments:

Dan said...

Jody,
One thing you are not taking into account I believe is that the market now more than ever is heavily manipulated by the PPT (Plunge Protection Team)..It is no longer driven by free market forces.

Jody said...

On the contrary, Dan. The relatively narrow market trend since January is probably a result of the periodic actions by the Federal Reserve at the dips. Thus the trend reveals, rather than hides, those effects. But even the Fed will eventually run out of options, and that may be when the S&P finally breaks out of the trend.

Dan said...

Jody,
The Fed is one arm of the PPT, others are the media controlled by Wall Street, the internationalist bankers, etc.

You may very well be right that before things improve they will run out of ammunition and the market will fail to hold the current levels. I believe there is a greater chance of this happening then the opposite.

Jody said...

Dan,

Manipulation of news and markets by powerful people is as old as time itself. Trust me, you would have a hard time finding any warnings of a market crash in newspapers from 1928 or 1999. And if you think that "internationalist bankers" can manipulate markets today, then how about the giant monopolies that existed until the early 20th century?

My point is that there's nothing new under the sun here. Bubbles inflate, panic sets in, players step in to try to limit the damage, and then the bubble bursts anyways. It has happened many times before, and it will keep happening as long as there are greedy and emotional human beings alive on Planet Earth.

I think my predictions will bear out precisely because I recognize the unchangeable human element in every bubble/burst cycle, and that includes both free market forces and "manipulation" from outside the market. The most common mistake people make is to think that "this time is different," as you seemed to do in your first comment. ("...the market now more than ever is heavily manipulated by the PPT ...")

If you think that this is the first time, or the worst case, of market manipulation in history, then I don't think you know history as well as you think you do.

John said...

Hi Jody. I like those trend lines. The most bearish thing I'm seeing is the VIX in an ascending triangle, MACD coiling, and volume contracting. I think the VIX is ready to explode and we get our next leg down.

Thoughts?

Jody said...

John,

Yes, I think the VIX pattern in particular is pointing towards further declines, because something has to give eventually. In the last couple of days VIX actually managed to fall along with the S&P, which is something I don't think I've seen before.

Anonymous said...

you have been rather quiet for the past three weeks. the s&p has broken out of the channel to the upside. How long do you think the bull rally will last and at approximately what level do you expect the market to turn back down? Also, any thoughts on emerging markets? Does the dog wag the tail or the tail wag the dog?

Jody said...

My forecast hasn't changed. In the original post I said: "... any upward break would probably be temporary."

The S&P 500 broke above the upper trendline to close at 1370 on April 1, and hasn't closed any higher than 1372 since then. Unless the S&P manages to close above 1400, I will remain satisfied that the long term bear market is continuing.

Jody said...

Foreign markets have been falling right along with the S&P 500 despite the decline in the dollar relative to other currencies, so investors are obviously pulling out everywhere. I expect the parallel drop to continue as long as the S&P 500 remains in a bear market.