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Point & Go Figure: The Caligula & Claudius 500 (SPX)


Caligula my man, bro!


First, to answer the question foremost on everyone's mind, the answer is yes. Caligula did, in fact, consider installing his favorite racehorse, Incitatus, as the Emperor's Chief Consul, a post roughly equivalent to the United States Chief Justice of the Supreme Court.

Shortly thereafter, Cassius Chaerea, with the help of two well-armed friends, caught Caligula by surprise in a darkened hallway and engaged in a little Emporius Bludgenius, thereby ending the infamous emperor's orgiastic, some say schizophrenic, rule.

The Praetorian Guard quickly elected Claudius, Caligula's uncle, emperor. Considering the fact that Claudius was afflicted with some sort of paralytic condition from birth, which left him partially crippled and largely incapable of speech, the move made complete sense. The parallels and lessons for us are clear: after the orgy ends, expect a sideways path without clear direction or conviction, before a new "better" emperor shows up to sing Karaoke, bleed the Treasury dry, and burn down half the capital city. Also, provoke a civil war. That, of course, would be Nero, a story for another day.

Let's look at a chart of Caligula... I mean, the S&P 500... which is, oddly enough, partially based on Roman numerals, employing Xs for good and Os for bad.

S & P 500 Index (SPX) 5x3 scale
(Chart courtesy Dorsey, Wright)

I don't think I need to point out the eerie parallels between this chart and the rule of certain greed-tainted Roman emperors. OK, maybe I do.

The last positive technical action for the S&P 500 occurred in July. Since July the SPX has three consecutive technical "sell" signals, culminating in the recent trendline violation from the May lows.

The context here is largely negative:

  • The bullish percent for the S&P 500 is negative (in a column of Os) at 56%, down from 68% in July, and a peak of 72% in August.
  • The percent of stocks above their 50-day moving average is negative (in Os) at 26%, down from a peak of 82% in July.

But wasn't this the case in late April and early May following the trendline violation at 1150? Where are we in relation to what turned out to be an important trading low at 1140? Is this time different? Are we reaching oversold levels from which we can expect a trading bounce?

On April 25, the day the S&P 500 5x3 chart generated a new buy signal, the Bullish percent for the SPX was at 54% in Os but the percent of S&P 500 stocks trading above their 50-day moving average was positive (in Xs) at 34% after reversing up from a low of 16% on April 19, a week before the SPX "buy" signal.

My read is that the probabilities favor a continuation of this move down, though a recovery is getting nearer. Once the percent of stocks above their 50-day moving average reaches oversold conditions, below the 20% level where that indicator typically records a low under negative contextual conditions, then I will look for some type of meaningful bounce. Until then, the emperor continues to wander the palace halls, alone, vulnerable, and quite possibly still drunk.

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No positions in stocks mentioned.

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