Home > Financial Ponzi, investing, Stock Market, technical analysis > Interesting Crossroads in the Charts

Interesting Crossroads in the Charts

The S&P continues to unsuccessfully bang its head on trendline resistance and the 200 day moving average.  If we are indeed starting a more severe downdraft, a failed rally back to the 200 day MA is par for the course.  It happened in both 2000 and 2008.

The BEAR case:  First, the S&P has failed at trendline and 200 day MA resistance for 3 straight days after failing last month as well.

The bearish view is supported by the bond market, which has seen continued underperformance from its high yield sector, and continued strength in Treasuries.  Below is a 9 month chart of TLT (30 year Treasury ETF), which remains near its highs and above trendline support:

It’s also worth noting that both High Yield and Small Caps, two pretty good gauges of genuine risk appetite, have underperformed the S&P over the last 3 months.

So far I remain in the Bear Camp.  Barring some significant changes in the environment, I will likely stay there.  However, it’s entirely possible that we get a Santa Clause rally – and maybe more.  The United States (S&P) has been about the best performer in the world.  I wonder if that will change next year, or if there is a rip-roaring rally for all in the wings, because…

The BULL case:  A number of foreign markets have established pretty clearly defined inverted Head-and-Shoulders patterns.  They aren’t yet particularly close to the neckline or a breakout, but it’s worth noting their formation.

Here is the broad Emerging Markets ETF (EEM):

High Yield bonds (JNK) have also formed an inverted Head and Shoulders:

Here are some of the specific markets with nice looking inverted H&S patterns.  China:

Brazil:

Chile:

As you can imagine, many of the emerging markets have a similar pattern.  It sure does look like a bullish setup.  I am not sure how it will play out in relation to the issues in Europe and the U.S., but I guess that’s what makes the casino fun.   For now, I expect a bearish outcome… but I reserve the right to change that view every single day.

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  1. December 7, 2011 at 1:27 am

    Getting a yield of 6-8% for these bonds is not good enough. You’re doing the right thing if you take high yield over total return.

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