SPX, INDU, and Employment Updates: Looks Like the Shoe is on the Other Hand Now!

No one can deny that many indicators look bullish right now. The bears are rapidly running out of real estate, and the Dow in particular is within a stone’s throw of making new highs.

However, the burden of proof is now on the bulls. Anybody can run the market back and forth in a trading range, but until it breaks out, it’s just range racing.

When the Fed Balance Sheet Will Hit the Fan

It’s worth remembering that things looked fairly bearish a week ago, but bears failed to get it done when they needed to, as discussed on April 22:

I think one of the key trendlines right now is visible on a longer-term chart, and it’s not too far below the current market. If that red trendline breaks, the market could start the next big leg down. If it doesn’t break, the market should continue to bounce higher.

Second, Even Bigger, Explosion of Sell Signals in Swing Trade Screens

Bears were unable to break the red trendline, as shown below, which did indeed lead the market to bounce higher.

Now the market has reversed roles, and the onus is on the bulls. Things look fairly bullish (as they looked bearish recently), but the bulls now need to “prove it” by making new highs. Until they do, the danger of a bearish reversal can’t be ignored.

The Dow chart illustrates the levels a little more clearly.

There are a few different ways to view the rally on this chart. The bearish view basically needs a top immediately. The bullish view suggests another new high, which would also invalidate the bear count. It seems reasonable to assume that if the bulls get a new high, then that will probably mark wave (1) of the larger (v) and at least a couple weeks of new highs would be forthcoming. It’s also possible it would mark ALL of (v), but that seems less likely at the moment.

The SPX looks like it either has formed, or is very close to forming, at least a short-term top. It’s completing either its C-wave or first wave up.

Zooming out a bit, the SPX counts look like this:

The advantage the bulls have, of course, is that they are continually backstopped by the Fed, whose goals of making the dollar worthless have, thus far, largely been successful. A worthless dollar makes everything else worth “more” in dollars: from stocks to precious metals, to oil/gas and food. So it seems like things are going up in value, when in actuality the dollar is simply going down in value.

In reality, it’s a zero-sum game that only damages the American public with higher prices. The upside is that we all “feel better” about things while they’re doing it.

However, I propose that the Fed should at least buy us all a nice dinner. And I’m talking about a good restaurant, no greasy spoon joints. I think this is only common courtesy, as the majority of us Americans appreciate being taken to a nice dinner before getting royally screwed.

Of note, the Fed recently announced a new motto, which I think is a sad, but excellent, example of Truth in Advertising:

The Federal Reserve: Saving the World Daily by Destroying America

I’ll stop ranting about the Fed now (until next time!), but it’s hard not to get depressed about this stuff from time to time.

Segueing back to the market: There is an interesting psychology that’s developed among bulls and bears alike regarding the Fed. The bulls have been backstopped for so long, that if/when that safety net ever goes away — or fails to work — I wonder: how far will the market fall before the masses realize it’s not working anymore?

And what will happen then, when they do realize it no longer works? I doubt it will be pretty. It will probably resemble a first grade fire drill, with everyone rushing about chaotically, failing to take their “place” in line, and most making a mad dash for the exits completely out of order.

It’s hard to say with any certainty how far away that day is… it might be next week, it might be next year. But it does seem that, at some point, this fiat fiasco must end.

Along those lines, another interesting chart I want to call attention to the euro/dollar. Euro/dollar has some pretty serious intermediate and long-term resistance not too far overhead. Again, the onus here is on the bulls to break out.

I’d like to end this article with a couple charts and comments from my friend Lee Adler at the Wall Street Examiner. Lee’s comments in italics below:

Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.

Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.

That speaks for itself. As the improvement in claims has slowed, so have the gains in stock prices.

I found this data quite interesting, since it fits with both counts quite well. Sometimes we get so focussed on the short-term that it’s easy to lose the big picture; the counts are really just nit-picking in the grand scheme of things. Assuming the SPX drops back below 1000 at some point in the future, what’s the practical difference if the top was at 1422 or 1452? Trade safe.

Share on Facebook