Charts created using Omega TradeStation 2000i.Chart data supplied by Dial Data
The S&P 500 has soared to new all-time highs leaving most everyone in a state of giddiness. The NASDAQ and the Dow Jones Industrials (DJI) have gone along for the ride. The Dow Jones Transportation (DJT) remains, for the moment at least, just below its all-time highs. With the giddiness of new all-time highs, however, comes a note of caution. The giddiness may be short-lived.
The monthly chart of the S&P 500 is potentially very bearish. The S&P 500 is forming what appears as a huge ascending wedge triangle. The top channel is formed by joining the low of July 2002 with the higher low of February 2003. A couple of things stand out with the channel line. First, the line appears to have acted as the breakdown zone for the financial crash of 2008. The second thing is that the 2011 high touched up close to the channel but failed to breakout over. A sharp correction followed.
The lower channel is formed from the low of March 2009 and up through the low of October 2011. The low of November 2012 tested down towards the line but failed to break it. The current market is testing the top of the channel. Wedge triangles are not unusual. This one just happens to be forming on a long-term chart. The breakdown zone is currently near 1,430 and the 18-month moving average. A breakdown of the wedge triangle potentially implies objectives that could take the S&P 500 in theory all the way back to its 2009 lows (666). Minimum objectives could be at least the halfway point at around 1,130.
Note the indicators as well. Both the MACD indicator and the RSI indicator are making lower highs even as the S&P 500 moves to new nominal highs. The rally of 2002-2007 took 5 years before the S&P 500 returned to its 2000 highs. This time around, the rally took a less time as the market is just over four years from its March 2009 low.
So what is going on? The market was up sharply in January and February. Mutual funds in the US need to be fully invested especially when a quarter end is coming up as it was in March. It is also year-end for a number of funds as well as some hedge funds. Therefore, a market closing higher into the end of March means big performance fees. The early part of April can bring further buying. The funds are usually probing higher to see if there any sellers. As there is incentive for the funds to keep the “party” going for a while so that they can sell to late comers. Then when the market tops and falls, they all announce “Sell in May, and go away”. It is not unusual for markets to have tops in April and October.
There remains a potential objective for the S&P 500 up to as high as 1,605 or it could be up to 1,620. But at this point there are no higher objectives. The market is being driven by QE in the US, Japan and even in Europe as the Euro zone has come back from the precipice of Cyprus by tapping into depositors funds. Depositor’s funds are now at risk in the western economies as it has been revealed that agreements are in place to use depositor fund to bail-in collapsing banks rather than bailouts from the taxpayer.
If the market were to break sometime this month, the breakdown could be similar to what occurred in July 2007. The market fall in July 2007 was triggered by the first breaking news of the sub-prime meltdown when Bear Stearns announced the closing of some funds. Following the first break, it is not unusual to see the market rebound back. The market could even make new highs as was seen in October 2007.
The first breakdown point of note for the S&P 500 is at 1,535. The low last week was at 1,539. As the S&P 500 climbs in the wedge triangle, time is running out as the wedge narrows. Rather than it being “up, up and away” investor’s should heed the signs as it might well be an “or”.
Copyright 2013 All Rights Reserved David Chapman
General disclosures
The information and opinions contained in this report were prepared by MGI Securities. MGI Securities is owned by Jovian Capital Corporation (‘Jovian’) and its employees. Jovian is a TSX Exchange listed company and as such, MGI Securities is an affiliate of Jovian. The opinions, estimates and projections contained in this report are those of MGI Securities as of the date of this report and are subject to change without notice. MGI Securities endeavours to ensure that the contents have been compiled or derived from sources that we believe to be reliable and contain information and opinions that are accurate and complete. However, MGI Securities makes no representations or warranty, express or implied, in respect thereof, takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of, or reliance on, this report or its contents. Information may be available to MGI Securities that is not reflected in this report. This report is not to be construed as an offer or solicitation to buy or sell any security. The reader should not rely solely on this report in evaluating whether or not to buy or sell securities of the subject company.
Definitions
“Technical Strategist” means any partner, director, officer, employee or agent of MGI Securities who is held out to the public as a strategist or whose responsibilities to MGI Securities include the preparation of any written technical market report for distribution to clients or prospective clients of MGI Securities which does not include a recommendation with respect to a security.
“Technical Market Report” means any written or electronic communication that MGI Securities has distributed or will distribute to its clients or the general public, which contains a strategist’s comments concerning current market technical indicators.
Conflicts of Interest
The technical strategist and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of MGI Securities, which may include the profitability of investment banking and related services. In the normal course of its business, MGI Securities may provide financial advisory services for issuers. MGI Securities will include any further issuer related disclosures as needed.
Technical Strategists Certification
Each MGI Securities technical strategist whose name appears on the front page of this technical market report hereby certifies that (i) the opinions expressed in the technical market report accurately reflect the technical strategist’s personal views about the marketplace and are the subject of this report and all strategies mentioned in this report that are covered by such technical strategist and (ii) no part of the technical strategist’s compensation was, is, or will be directly or indirectly, related to the specific views expressed by such technical strategies in this report.
Technical Strategists Trading
MGI Securities permits technical strategists to own and trade in the securities and or the derivatives of the sectors discussed herein.
Dissemination of Reports
MGI Securities uses its best efforts to disseminate its technical market reports to all clients who are entitled to receive the firm’s technical market reports, contemporaneously on a timely and effective basis in electronic form, via fax or mail. Selected technical market reports may also be posted on the MGI Securities website and davidchapman.com.
For Canadian Residents: This report has been approved by MGI Securities which accepts responsibility for this report and its dissemination in Canada. Canadian clients wishing to effect transactions should do so through a qualified salesperson of MGI Securities in their particular jurisdiction where their IA is licensed.
For US Residents: This report is not intended for distribution in the United States.
Intellectual Property Notice
The materials contained herein are protected by copyright, trademark and other forms of proprietary rights and are owned or controlled by MGI Securities or the party credited as the provider of the information.
Regulatory
MGI SECURIITES is a member of the Canadian Investor Protection Fund (‘CIPF’) and the Investment Industry Regulatory Organization of Canada (‘IIROC’).
Copyright
All rights reserved. All material presented in this document may not be reproduced in whole or in part, or further published or distributed or referred to in any manner whatsoever, nor may the information, opinions or conclusions contained in it be referred to without in each case the prior express written consent of MGI Securities Inc.
The content on this site is protected
by U.S. and international copyright laws and is the property of GoldSeek.com
and/or the providers of the content under license. By "content" we mean any
information, mode of expression, or other materials and services found on GoldSeek.com.
This includes editorials, news, our writings, graphics, and any and all other
features found on the site. Please contact
us for any further information.
Live GoldSeek Visitor Map | Disclaimer
The views contained here may not represent the views of GoldSeek.com, Gold Seek LLC, its affiliates or advertisers. GoldSeek.com, Gold Seek LLC makes no representation, warranty or guarantee as to the accuracy
or completeness of the information (including news, editorials, prices, statistics,
analyses and the like) provided through its service. Any copying, reproduction
and/or redistribution of any of the documents, data, content or materials contained
on or within this website, without the express written consent of GoldSeek.com, Gold Seek LLC,
is strictly prohibited. In no event shall GoldSeek.com, Gold Seek LLC or its affiliates be
liable to any person for any decision made or action taken in reliance upon
the information provided herein.
