Jeff Cooper: Is 1,965 the Next Stop for the S&P 500?
Stocks may party in the summer and cool off in the fall.
Or do you come down crashin'
Seeing all the things you'd done
All was a big put on.
-- Rolling Stones, "2000 Man"
Yesterday's (June 5) European Central Bank moves were presumably designed to weaken the euro. Yet, the dollar reversed all its initial gains.
Dollar Index Chart for 2014:
After fading initial strength and a dip into the red, the S&P 500 (INDEXSP:.INX) found its footing, sprinting back to the upside largely on the heels of hedgie David Tepper's comments that he was "feeling better" about the market.
This is a market that has little conviction and, hence, apparently has trouble thinking for itself. So, this leaves the driving to others like Carl Icahn and Tepper, whose tweets and call-ins rule the roost.
If GDP is negative and stimulus is winding down, then obviously buy the breakout if Tepper and Icahn are tweeting and dialing.
It matters not that you or I may disagree with the policies, philosophy, ethics, or the outcome of central banks' going Keynes-on-steroids. As always is the case with markets, things don't matter until they matter. And right now, many things -- fundamental, technical, or geopolitical in nature -- just do not matter.
There have been many negative items that could have hamstrung the bull -- like the lousy first-quarter GDP report or the continuing crisis in Ukraine, to mention just a few.
This has been a remarkably efficient market, making fools of everyone.
I don't expect the consensus to be right. I'm just surprised by how wrong it has been.
-- Jim Bianco
Market behavior is so stunningly exceptional that many players have to say, "We have no idea." The market has violated a slew of compelling factors that should have sent it south.
In yesterday's Daily Market Report [subscription required], I noted that the S&P has not tested its 200-day moving average since November 2012. This is the longest streak without such a test in 50 years. So it's not as if the S&P isn't stretched. Yet, instead of playing catch-up to the March and April declines in the Nasdaq-100 (INDEXNASDAQ:NDX) and the Russell 2000 (INDEXRUSSELL:RUT), the S&P broke out with the NDX playing catch-up, despite the failure of the market to score a major distribution day of 10:1 down volume since February.
The Street came into 2014 convinced of the Big Short in bonds. Mr. Market made fools of the vast majority of bond players as well.
Moreover, volatility and volume have been crushed. Any way you slice it, this is not how normal markets trade -- that is, if you want to call butting heads with the robots and the central banks "trading."
One trader put it succinctly -- "God has a great sense of humor: an 80-week bull market, second longest of all time, and Wall Street doesn't participate because no one trades."
Mary Jo White of the Security and Exchange Commission (SEC) wants you to know that the market is not broken. It's just a little crooked.
So, when does irrational exuberance become insane exuberance?
Does market really have to do the melt-up thing like in 2000 when the S&P spiked a couple of hundred points within weeks to a climatic top? Or like 1929? Curiously, as offered in the June 4 Daily Market Report [subscription required], while most think 1929 was a straight up year into the September third peak, actually the first five months of the year were flat until it exploded in June for a three-month 20% run.
June 6 has been a potential turn date for a few months. Clearly, the market has run up into it. That said, the S&P eclipsed a major price vibration when it blew through 1920. On the Square of 9 Wheel (that squares the circle), this level represents nine revs of 360 degrees, or squares, up in price from the 666 low in 2009. It is worth considering that nine squares up from the 1974 low of 62 gives 666. Likewise, six squares up from the 2002 low called the 2007 top to the penny.
The normal expectation is that if the 1920 level was going to turn the market, it should have been a brick wall. Unless the S&P knifes back below this level immediately, the presumption is higher prices. That said, June 6 is a significant potential turn date, and time is more important than price. What is also interesting is that 666 trading days from low ties to June 20, the Summer Solstice. Is it possible that so many large players were taken to the woodshed in the spring correction by the crash in many glamour stocks that by hook or crook "they" will find a way to keep the market buoyant into the end of the second quarter for a more graceful exit?
In addition, sometimes important time-and-price harmonics see a 90-degree overthrow from an idealized price level. From 1920 S&P, 90 degrees up ties to 1965. What is interesting is that 1965 aligns with March 6 on the Square of 9 Wheel. So, 1965 and June 20 set up as an important vibration.
The relentless bid continues at the same time the number of bulls has eclipsed the level at the 2000 peak and the 2007 peak -- although there was a higher number in 2004. The highest projections for year-end S&P that I recall are around 1975 to 2000. What does the market do for an encore if the S&P gets there before the end of the second quarter as targets get ratcheted up following this weekend's think tanks? The consensus for 2000 seems a given now. What if the S&P stops shy at say 1965 or blows through 2000 on the way to 2100 this summer, with 2100 being one full rev up from 1920? Often, when summer doldrums in the market are replaced by fireworks, there's hell to pay in the fall. What are perhaps one-time transitory periods should not get confused with permanent new paradigms, which is what occurred in 2000.
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