A picture for bearish views with lower targets for the S&P 500

Consider the big picture, I wanted to show this monthly chart of the S&P 500 with annotations and discuss where equities are headed over coming months, starting with some of the time and price thoughts discussed here in recent weeks. There are various interesting things about the March lows, one of them being that they occurred in the time window of 1.382 year from the October 2007 peak. We've just seen the conclusion of the time window associated with the 1.618 year from the October 2007 (extended in particular considering that the Nasdaq peaked somewhat later in November 2007). I've marked notes showing that September this year is 1.382 of the time range from the 2002 lows to the 2007 highs, and June 2010 is 1.382 of the time range from the 2000 highs to the 2007 highs. There are various other methodologies suggesting market low points this fall and/or mid-2010, as well. The Bradley model does indicate lower movement into June 26, with an important turning time July 14-15 (suggested to be at higher levels than reached in June, unless a cycle "inverts"), and then rolling over and going down into November although not necessarily to new lows for the year. For a target level, one that I like quite a bit is 600, since I still like my idea of the markets tracing out a very large Elliott Wave flat ... and one of my readers straightened me out, that instead of only looking for the 1.272 and 1.382 levels that I've marked on my other, longer-term monthly SPX chart, this comes after an extended fifth wave during the 1990's and so that prior wave 2 (at about 600) is a common area to look for the correction. The fact that 600 looks to intersect with one of the fork trendlines on the chart below in June 2010 is a nice bonus. But it doesn't have me locked into that price and time as the only target to expect.

There are other possibilities, one being the alternative Objective Elliott Wave count showed by Tony Caldaro that would fit with the idea many are talking about, a pullback that would look like that right shoulder of a reverse head and shoulders and then spring the indices to a second rally leg higher, with SPX perhaps about 1020 or 1100 and the Nasdaq closing a gap commensurately higher than we've reached so far. Something we'll be tracking closely, as I know Tony will be doing. Interestingly, if we do see a second rally leg up, that could buy a bit more time for the market to hang out before rolling over into that June 2010 time frame.

What about T Theory, which Terry Laundry has been showing as pointing to a bull market (or at least a very massive rally) occuring for a 17-month time frame? I do respect his work, I just really wonder whether it is valid to project that based upon accumulation/distribution volume calculations, now that the huge credit bubble has largely dissipated and 20x or 30x leverage isn't being used anymore. I just question whether the type of advancing volumes necessary to drive a rally like that, can be marshalled for the effort. Especially given that, on top of the draining of liquidity and credit leveraging, there are increasing demands on the financial system being posed every day. Many players are racing ahead of creditors putting all they have into making those payments, with not so much left over for equity market investment. So to sum up, I don't know that his model is adjusting for the credit bubble deflation.

Which reminds me of a good quote, “Depression is the aftermath of credit expansion” by Ludwig von Mises, which I read in a paper about Kondratieff yesterday. It's a paper written back in 2007 shortly before "the peak," but still a great read. You can find it at http://yelnick.typepad.com/files/08_01_07_news.pdf. It's true to the idea that Kondratieff autumn played out through 2007, giving way to the winter phase that may last through 2020.

There are others who believe for various reasons that we are in the early stages of a large bull market. Personally, one of the strongest indications I would have to leave the door open for that would be the market getting support from very long term trendlines - see the first three charts (SPX, DJIA and Nasdaq) in this post, Second Crash Wave - #2 : xTrends (6/10/09 at http://xtrends.blogspot.com/). I'm adding this xTrends site to my "other sites of interest" at the right side of the page. After all, I've gotta like someone who draws similar lines on the VIX charts and then details it out even more (see VIX and beyond... at that site, 6/16/09). The chart work there is fascinating, and yes it does provide a lot on the bear-market side.

And if you read xTrends' Second Crash Wave - #2 : xTrends and related posts, you see that they are also thinking about September 2009. Again, that isn't enough to have me locked into that thought, just interesting to note.

The montly chart of SPX below shows that the indicators did improve, as they should have with the rally, but still have not moved into the position seen during 2003 when they confirmed a serious move up. Moving averages are in the process of rolling over. It's obvious that unless price can vault much higher and essentially go to new highs, those moving averages will at least level out if not start downtrending.