Short Long Term

As you may be aware I’m on a trip through Southern California right now to visit my old stomping grounds. My agenda is pretty packed as I (as usual) squeezed way too much activity into less than two weeks. And since I arrived here I have been doing nothing but to run from one place to the next; catch up with my friends, load up on a boat load of products we can’t get over in Spain, take care of overdue errants, you get the idea. I usually handle jet lag pretty well but after five days of back-to-back activities combined with too little sleep I’m starting to feel the squeeze. So I hope you can forgive me for having to make due with just a few salient long term charts this time.

I was playing with my monthly chart today and when I zoomed out a bit more I had a bit of an epiphany which I decided to share with you guys. Give yourself a moment to get a good look at the last ten years of activity. Except for the big run up the most interesting part is the big 2007/2008 drop followed by what now amounts to a 3 1/2 year rally.

Now compare what you just saw with this simple graph of a bouncing ball. Kind of looks familiar, doesn’t it? Obviously on our monthly SPX chart the ‘floor’ would be tilted upward but I think you get the basic rationale. I think it’s no secret that this rally has been fueled by quantitative easing and other supportive measures at an unprecedented scale by an increasingly emboldened and wide reaching FOMC. But as we push forward it seems that each new round of QE affords us less and less benefit. In other words – more and more input is needed to achieve the previous amount of reward – in this case a rise in equity prices.

Another way of looking at this is that momentum is simply diminishing and that we at some point will see a larger correction that may take many investors and traders by surprise. Again, remember that we are talking very long term here and nothing keeps this tape from scaling higher for several more weeks and perhaps even months. As a matter of fact, my point & figure SPX chart continues to look very bullish:
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And here she is in all her glory: my smaller P&F is now in sync with my long term one as both point toward 1550 give or take a few handles. The trend continues to be intact and until that changes we’ll keep those bear hats in the closet next to our skeleton.

Japanese Yen looking VERY interesting. After a huge drop courtesy of BOJ intervention in February we have been climbing diagonal support here most of the year. There was talk about another BOJ action late last month but since then we have been going sideways and are now approaching support. IF we drop below we may just see acceleration so keep an eye on the 124 mark.

Gold meanwhile is officially in neutral territory as it has met its bullish price objective of 1780. HOWEVER a push above 1790 would trigger a new bullish price objective and I’m seeing very little upside resistance on my LT interval charts.

That’s all I have for tonight as my eyelids are becoming increasingly susceptible to gravity. Tomorrow afternoon I’ll be heading to the Anza Borrego desert North of San Diego. After the gridlock of Los Angeles the tranquility and sheer vastness of this place is exactly what the doctor ordered. This is the great American West at its very best and I’ll be enjoying every second of it.

Cheers,