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S&P November Lows Tested
by Carl Swenlin
February 27, 2009
Last week the Dow penetrated the November lows and it remained below them this week. During a week or tedious market action the S&P 500 tested its November lows on Monday and Friday, and each time the support held. This is somewhat encouraging, but you will notice that Friday's decline broke down from the short consolidation (reverse flag) formed the first four days of the week. This implies that the decline is not completed yet.
Presently, the SPX has formed a double bottom. It is wide spaced and an excellent base from which to launch a medium-term rally; however, as far as we know the decline is not over yet. To paraphrase Moms Mabley, don't fall in love until the purse is open and the money showing.
I think it is time to take a look at gold. Like other commodities, it broke down from a parabolic top in 2008. Unlike other commodities, it found a bottom in October and has rallied through an important declining tops line, back to just below the level of all-time highs. It is so strong that it has decoupled from the dollar, meaning that it rallies even as the dollar advances.
On the daily- and monthly-based charts I can make the case that gold could turn bearish very soon; however, gold is in a bull market, and we should expect bullish outcomes. There is also an unusually high demand for gold during this time of economic meltdown, and demand should increase if stock prices continue to erode.
Bottom Line: The S&P 500 has dropped below its 2002 lows for the second time since November. While the November lows are still holding, the 2002 lows are long-term in nature, and therefore more significant. I remain bearish until other evidence presents.
Our timing model for gold is bullish, but because to the significant overhead resistance, my gut feels neutral.
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MAIL
Hi Carl,
I really enjoy your service and have for about nine years. Thank you for all your hard work and dedication. I was wondering if you could tell me the potential technical "bottom" numbers for the Dow, S&P 500, and Nasdaq?
Thank you very much.
ANSWER: I don't follow the Nasdaq. I have rough targets of Dow 3000 and SPX 300 around late-2010. I wouldn't exactly call these "technical" targets -- I am guestimating a total decline of about 80%, using the 1929-1932 bear market 90% decline as a guide. The timing is based on the estimate for the next 4-Year Cycle low, which is due mid-to-late 2010.
While I can't swear by these estimates, I don't think I'm sticking my neck out too far.
Carl
. . . .
Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
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2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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