To 1350 (not Infinity) and Beyond

As was said in the last post the market has been trending down and going sideways  for the past 6 months along with the uptrend in Bonds. I think we are at a stage where the market could start trending higher and Bond to trend lower , but not in a straight line though (see chart for a possible pattern) . But in the 2nd half of 2012, we could see the market(S&P500)  challenging 1400  and above.

When Bonds Turn Up Stocks Retreat

Bonds have been in an uptrend for a long time , as the chart shows, it has been in that uptrend for almost 25 years. whenever the bond price bounces from the lower trendline, stocks go into a weak phase and vice-versa. I think stocks are going to be weak for the next couple of months. My guess is that S&P500 will remain weak and go into a downtrend phase, but later it will mount another rally to the 1500's during the election year(2012).

Continuation of Up Trend

Updated chart from prior post. As in prior post , i think the market is still in the process of a sideways trading range and eventually will break above 1220(the top line), but the timing is uncertain. My initial target is 1250 for the current up trend. and then the next up cycle will take it to 1350.

is SPX retracing an old pattern?

(click image to enlarge)

Market's run from March 2009 finally stopped at 1220 and we have moved into a bear market pattern unless market climbs back above 1105 quickly. In the graph above, if the current pattern retraces a similar move back in 1997-1998(Asian currency crisis) i guess 950 is the bottom of the range(Do we call that Euro crisis?). I still don't know if the market will come all the way down to 950, but it should stay above 950 if it comes down. If the market climbs above 1105 in the near term, this bearish pattern is negated. Also 1010 area is a support area above 950.

Market encounters head winds

Since crossing 950 after the bull-bear tug-o-war(as mentioned in the prior blog entry), the market

gained almost 14%. It has been going up for the last seven months and we are just below a major resistance area in the s&p500 index. 1100-1150 is another area that has shown some consolidation in the prior up-down moves as you can see in the chart, ie. the market does not shoot straight up but consolidate or sell-off before moving up. If the market sells off then 950-980 area should provide good support.If it goes below 950 and stay below it then we have a major problem and will lead to another downturn in economic conditions. But at this point , i think the market will consolidate between 950 and 1125 and eventually go up to regain new highs.

S&p500 index bull/bear tug-o-war

(click the chart on enlarge)

S&P 500 index has some work to do in order to climb above 950. On a daily or weekly basis the index still could climb above 950 but on a monthly basis it has to close above 950 and stay above it for the long term sustainability of the market.

As the chart shows, the market started having difficulty at this level starting in 1997. So everytime it revisits this area bulls and bears get into a tug-o-war. The bears will defend the area around 950 with all the weapons they have in their arsenal. Bulls having climbed from 666.79 is already tired(not enough capital to invest at this level inorder to power thru 950) and needs some rest. Once the rest period is over, the bulls need to accumulate enough energy to bring down the bears standing in line at 950. Don't know how long bears will have the strength to hold the bulls below 950. Watch and wait!

Warning Signs

There are some warning signs in the horizon for the stock market.
The chart on the right side shows the ratio of Nasdaq vs S&P500 on a daily basis . Whenever this goes down and crosses 50 day moving average to the downside , the market also went down with it . Don't know if that's the case this time. Also I don't know if this is a short term issue due to rotation of money out of tech stocks and moving into banking stocks. But nevertheless this needs to be watched.