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business newsThe Most Important Charts You'll Ever See
Among other things, they help prove that this week is a major turning point for the market.
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The following charts may be among the most important charts to consider, not just for the balance of 2010 but for some years to come. There isn’t one single chart that casts an inextricable shadow of concern over the market, but a message implied by the weight of evidence by all the charts below.
However, before we turn to the charts, let’s recap a bit. The market rallied much further than I would have thought off the March 2009 low that I forecast. It rallied much further and faster than imagined -- especially without the benefit of a base or without benefit of a test of those lows.
The question that should weigh on market participants minds is whether the advance from March 2009 was a reprieve rally in an ongoing bear market, an upward correction, or the beginning of a new bull market.
The charts below address this question and analyze the position of the market and pose the big question: Did the 2007-2009 bear market decline to 666 S&P come close enough to the uptrend line from 1942 to be considered a successful test? If not, then a downturn from a lower high in 2010 opens the possibility for a full test of the blue trend line (on the chart from 1870), which would call for an undercut of 666 S&P. It's not unfair to say that if three drives up from the beginning of the century culminated in 2000 and was tested in 2007, that a test of the uptrend line from 1932 could play out with the S&P returning to the point of origin where a parabolic advance began in 1995 below 500 S&P.
My tools allowed me to identify the June ’09 peak and the July low. At that time I believed that a test of the June highs would play out, but offered that if the June high was exceeded the S&P would run to September and a 38.2% retrace of the prior bear market near 1014. The S&P rallied well above 1014 to 1080ish in September and perhaps that was the message for a higher agenda despite the Key Reversal Day on September 23.
Be that as it may, in December there were multiple time/price harmonics that pointed to a topping process to begin with a top no later than mid-January and culmination in April.
At the February 2010 low I pointed out the “decidedly bullish” setup: The Monthly Swing chart on the S&P traced out its first Plus One/Minus Two Buy setup since the March ’09 low, as well as the first turn down in the Three-Week Chart since the March ’09 low. At that time I stated that an advance that recaptured the 1121 midpoint of the prior bear, and especially the January 1150 S&P high, increased the odds of a rally to the 61.8% retrace of the prior bear market rally near 1228.
The S&P scored a significant high at 1220 on April 26 at the tail end of our April turning point window. As touched on at that time, The S&P left an outside down week from the vicinity of its 200-week moving average. I believe the April 26 high will mark the high for the remainder of 2010. If a new recovery high is somehow out there this year, I believe it will be a marginal overthrow high and that it will occur before July is over. But, I think this is the short straw.
Essentially, the momentum that occurred going into the runoff at the end of the first quarter on regaining the 1150 January high, carried over into the April turning point window. However, once the S&P caved back in through the 1150 level significantly in early May, there's no reason for all those money managers and fully invested bears to be long unless 1150 is recaptured.
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