Currently, there's uncertainty if the economy will fall into recession within a year (e.g. given some of the previous money supply tightenings are in the "pipeline," and the flattening of the yield curve). In 1994-95, the Federal Reserve achieved a "soft-landing," and may avert another recession in the current period.
The first chart is an SPX 1993-94 daily chart that shows a top in Feburary '94, a 9.7% fall in two-months, and then a general uptrend. The second chart is an SPX current daily chart that shows a top three-months ago. The vertical line in the first chart is where SPX was three-months after the '94 top.
There are some crude similarites between the two charts, including falling to bottoms quickly, making higher highs and higher lows, and the 50-day MAs falling below the 200-day MAs. The two arrows, in the first chart, indicate a more sustainable rally above the 50-day MA, which began to rise. Consequently, it's uncertain if SPX is currently in a similar uptrend.
The third chart shows intermediate-term technical indicators remain bullish (the CPC 50-day MA, i.e. Put/Call above chart, is particularly bullish, because it peaked at 1.08, which is an all-time high). However, short-term technical indicators are overbought. SPX 1,261 is key support, i.e. breakout point of mid-July high, middle of daily Bollinger Band, and rising 50-day MA. SPX resistance is around 1,290, i.e. June high.
If the FOMC pauses Tuesday, that may ignite a rally, perhaps to around 1,290. However, it may be short-lived, because of concerns about a contracting housing market contributing to higher unemployment, lower consumption, and accelerating inflation (since rents are rising). Also, oil prices remain high. If the Fed tightens, a steep market fall may take place. Consequently, volatility may continue.
Free charts available at http://www.peaktrader.com Forum Index Market Forecast category.
Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998. Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years. |
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