S&P 500 Long Term Chart Reaches Point of No Return

The S&P 500 long term chart has reached the point of no return.

This is either the beginning of an accelerated move up. Or it is the beginning of the end… the end of the recent bull run.

It’s a bull run that has taken the stock market all the way to 2% beyond the high reached in September 2018! All the way to 4.5% above the highs reached in January 2018. Wow! That’s impressive. That’s 4.5% in 18 months! 3% annualized! 2% in the last 10 months! Can’t beat that!

And just think. WIth the Powell put in place, there’s no risk! Where else can you get a 3% return with no risk?

OK, enough sarcasm.

In fact, if you had bought the S&P 500 (SPX) via the SPY ETF in mid January of this year, when I belatedly told subscribers to Lee Adler’s Technical Trader to start buying SPY call options, you’d have a tidy 12% gain in 6 months. However, admittedly I was only recommending short term options trades. I did not like the market’s long term prospects at the time, and I still don’t.

At least until now.

But now, we have come to a fork in the road. And as the famed trading Yogi, Lawrence Berra, once sagely advised, “When you come to a fork in the road, take it.”

Ladies and gentlemen, investors and traders, denizens of Wall Street, we have come to a fork in the road of the long term chart of the S&P 500 (SPX).

It could not be clearer. This is the inflection point to end all inflection points. What transpires here over the next week or three will set the tone for the markets for months, if not years, to come.

And it will do so spectacularly.

I post this chart every weekend over at Liquidity Trader in the Technical Trader report.  Now I do realize that it’s a little busy for the average investor, so I’ll walk you through the key points that we see here.

First, at the top of the chart,  we see that the Long Term Trend Cycle and Momentum oscillators are spectacularly… uh… neutral. They’ve actually been downtrending since 2015, and have not yet broken that trend. But they could. They’re right at the point of no return.

S&P 500 Long Term Char

The second graph shows indicators that depict a cycle of nominal length of 3-4 years. They’re looking potentially “bottomy.” But they haven’t triggered clear buy signals yet. They’re lolling around in a flat, sideways pattern.

On the other hand, the negative divergences are glaring. Negative divergences occur when the price graph, in this case the S&P 500 long term chart, goes up, and indicators trend down. Such divergences are common, and they are not sell signals. But unless they turn upward, they are caution signals that the next downturn will probably be sharp and/or extended. Or both. That’s particularly so when the downturn comes from near the zero line on this plot.

So there again, we see a point of no return. If this indicator turns up, it would suggest a new and extended upleg in the bull market. If it turns down, look out below.

Then at the bottom of the chart are two lines representing the 10-12 month cycle and the momentum, or speed, of that cycle. It just peaked at the level that preceded January 2018 and July 2016 intermediate term tops. The 2018 peak preceded a mini crash. The 2016 peak led only to a mild, 4 month correction.

But which instance is more instructive for today? We’ll see.

In the center of the chart you see the price graph with different colors representing different long term cycle lenghts. I’ve also superimposed trendlines and channels. So it gets busy.

The S&P 500 Chart is at A Major Convergence – Something Must Give!

But look where we are now! Right at the tippy top of the convergence of 3 major trendlines. One of those trendlines extends all the way from the March 2009 bear market low. The others only go back to January 2018 and October 2018, but they are no less significant. The fact that these 3 lines come together at the round number 3000 makes this convergence just that much more significant.

A reversal here could send the S&P 500 careening back to support at 2800 in a flash. But that’s nothing. Bull markets often retest support. It will be what comes after that that will give us a better idea of where the market is headed over the long run. If stocks pull back to 2750-2800 and start to firm up from there, with momentum also turning up, that would suggest the resumption of a major upleg. It could go a lot higher!

But if stocks drop below, say 2750, and the related cycle indicators turn lower, look out below!

Maybe in the next couple weeks the S&P 500 (SPX) will clear that 3000-3015 area. That too could be a point of no return. Because above that the market looks clear for a run to 3180-3200 before it hits the next resistance trendline.

And that might be just for starters.

Finally, look at the two black trendlines extending forward from early 2018. They form what technicians today call a megaphone pattern, but old timers like me like to call a Broadening Top pattern. They form when a series of lower lows and higher highs make straight line trends toward the upside at the highs and toward the downside at the lows. This one is perfect.

So is it a top, or is it not? We’ll find out soon enough. I track and explain the developments for you every week in the Technical Trader. In those reports I also give you cycle price and time projections for time frames ranging from 4 weeks to several years.

And I’ll give you recommendations on how to capitalize on expected moves by trading SPY put and call options. I look for entry points for options with high reward potential while limiting risk to the greatest extent possible.

To do that I employ trading management principles using option strikes and expirations that are more likely to retain premium over the time frame of the expected trade. I then look for key trend levels to establish rational stop loss points. We love big gains, and we’ll accept small gains and small losses, but we never want to suffer those big losses that can happen with ill timed trades or poorly chosen expiration dates or strike prices.

And in any given week, if I don’t see a setup I like, I’ll tell you so. I don’t like churning in  a rangebound market. It’s a meat grinder that can chew up overly active traders. Sometimes the best trade is no trade at all.

So try the service today and see if it’s something that you think will work for you!

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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