Was S&P breakdown just a teaser?
The strong equity rally of the last two days (without AAPL???) has broken the short term downtrend. The relative weakness of other “risk” assets (like junk bonds, emerging markets, commodities) makes me think that a deeper leg down is on the way, but in the shorter term could we make new highs? If we are following the recipe of the last two years, which appears to be reasonably likely given the Central Bank fuel that is in place again this year, a new high could indeed be in the cards.
In the chart below, I’ve highlighted an initial pullback in red (treating our current breakdown as such). In each case, the breakdown occurred from a rising (bearish) wedge. In 2010, it occurred in January-February. In 2011, it occurred in early March. This year, it was early April. In each of the past two years, the high was made in late April-early May. In each of the last two years, the market has gone on to finish a Head-and Shoulders pattern through the summer (which did not break down in 2010, but did break down in 2011). Are we in for a repeat performance?