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S&P 500: A Long-Term Technical View

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Thu, 09/24/2009 - 09:17 | 78386 Leo Kolivakis
Leo Kolivakis's picture

Technical analysis is worthless when you're facing a tsunami of liquidity. Once the Dow breaks 10,000, I expect things will go parabolic.


Thu, 09/24/2009 - 09:56 | 78400 Anonymous
Anonymous's picture

It's ALREADY parabolic ! Maybe you meant super-dee-dooper parabolic....

Thu, 09/24/2009 - 11:33 | 78472 snorkeler
snorkeler's picture

Triple secret parabolic

Thu, 09/24/2009 - 13:29 | 78626 Oso
Oso's picture

triple dog secret dee doo parabolic.

Thu, 09/24/2009 - 13:57 | 78661 Anonymous
Anonymous's picture

Highly absorbent, snake-proof, money back guaranteed, fresh never frozen parabolic.

Thu, 09/24/2009 - 10:19 | 78414 pivot
pivot's picture

come on Leo, be serious.  you have a decent article over there about PE, don't ruin credibility with statements like this. technical analysis is surely not the only thing to consider, but when so many people (computers?) swear by it, you can't totally ignore.

Thu, 09/24/2009 - 17:54 | 78968 Anonymous
Anonymous's picture

Seriously... if you have completely ignored fundamentals and stayed long as long as the higher highs higher lows kept holding, you've been doing great. If, like me, you've paid attention to fundamentals you have surely missed out on a lot of the rally since March.

Thu, 09/24/2009 - 10:34 | 78426 fotokemist
fotokemist's picture

How does the volume of the liquidity tsumani compare to the volume of the pit of debt to be written off, etc.?

Thu, 09/24/2009 - 11:48 | 78495 percolator
percolator's picture

And fundamental analysis is worth even less than TA "when you're facing a tsunami of liquidity."  The Bulls are playing chicken and while they all think they can get out the door when the fire starts only a few do.  Remember many are not killed by the fire, a lot are trampled to death.

Thu, 09/24/2009 - 12:54 | 78588 Anonymous
Anonymous's picture

Thank you naufalsanaullah for the good analysis.
Everyone should read his own conclusions out of it. The message for me come from both your analysis and the comments posted on it: Too many bulls around, I collect my monies and disapear.

Thu, 09/24/2009 - 19:37 | 79055 john_connor
john_connor's picture

A comment worthy of a topping market. 

Thu, 09/24/2009 - 22:34 | 79156 QuantumCat
QuantumCat's picture

Tsunami of liquidity? Do you mean the eternal Keynesian well of public debt?  If you assume there is no limit on the USG's willingness to enslave the taxpayer and people to buy our debt, and you also assume that the FED is willing to destroy itself, then sure... a tsunami of liquidity may rule the day.  Otherwise, your tsunami of liquidity is more like a tiny wave in a huge ocean of debt and contracting credit.

Thu, 09/24/2009 - 09:33 | 78389 Anonymous
Anonymous's picture

Looking at the chart of the DJI since 1920 puts things in perspective. Set up the chart to view back to 1910 on a weekly Log Scale in BBG. With the Trend Channel annotation, start at the low point on 9/30/1921, and connect that to the high on 2/28/66. When you do this, you see the market held this trend very well, except for overshooting to the underside in 1981 slightly, and overshot to the upside during the tech bubble and '07. The bottom of the trendline is at 5400 right now, so I wouldn't be confident buying the market until DJI hits 6000 in the next 3 years, which it could easily overshot. Chart is similar for S&P.

Thu, 09/24/2009 - 09:39 | 78392 Carina
Carina's picture

Naufalsanaullah,  thanks for a great post!  Your analysis and perspective are always very helpful.  Thanks again!

Thu, 09/24/2009 - 09:51 | 78396 Anonymous
Anonymous's picture

Leo is correct.

Thu, 09/24/2009 - 09:51 | 78397 Anonymous
Anonymous's picture

"Once the Dow breaks 10,000, I expect things will go parabolic."
Great prediction, genius. It's BEEN parabolic for the past 4 or 5 months !

Thu, 09/24/2009 - 14:00 | 78665 Anonymous
Anonymous's picture

He's calling for it to go so parabolic, it actually starts going back in time.

Thu, 09/24/2009 - 10:29 | 78419 AR
AR's picture

Very good summary.  Good work and perspectives...

Thu, 09/24/2009 - 10:39 | 78429 Leo Kolivakis
Leo Kolivakis's picture

The MSCI global stock index is up 66% from the March lows. Everybody is expecting a selloff in stocks, which is why it won't happen. There is a lot of performance anxiety out there driving equities higher. I use TA as a tool, but I also recognize its limits, especially in these type of markets which are driven by massive liquidity flows. All I am saying is be careful with any short positions here because you might end up hurting as markets grind higher.

Thu, 09/24/2009 - 10:53 | 78441 Grand Supercycle
Grand Supercycle's picture

DOW / SP500 / FTSE daily chart shows increasing topping action.

Weekly chart remains bullish so far ...

Monthly chart remains bearish.



Thu, 09/24/2009 - 11:12 | 78446 Leo Kolivakis
Leo Kolivakis's picture

If you really want to hear a bear growl, listen to this Tech Ticker interview with Peter Schiff who thinks Ben Bernanke is wrong, the economy is getting worse, not better. Mr. Schiff also thinks the rally is doomed and gold will hit $5,000.

Thu, 09/24/2009 - 11:24 | 78464 naufalsanaullah
naufalsanaullah's picture

Mr Schiff ignores the political leverage the United States has over the rest of the world and the economic leverage that represents through its ability to debt inflate and debase its currency without panic liquidations from foreign creditor banks/nations. This causes creditor nations to have to inflate their own currencies to stimulate their way out of domestic crises that they can't finance through real debt repayments/interest payments from the United States, which shifts hyperinflationary/currency implosion risks to those creditor nations because of political mutually assured destruction from the ultimate too-big-to-fail: the United States. This is why I think China, Mexico, and the Eurozone will see much worse currency crises than America.

Thu, 09/24/2009 - 11:40 | 78483 Leo Kolivakis
Leo Kolivakis's picture


I agree with you that other countries are more vulnerable to currency crises. One thing that bugs me with Peter Schiff is that he dismisses the possibility of debt deflation, focusing on classic hyperinflation. For his doom scenario to materialize, you need unemployment to soar to 25%, otherwise it is inconsistent.

Thu, 09/24/2009 - 12:16 | 78529 naufalsanaullah
naufalsanaullah's picture

debt deflation can't happen with bernanke at the helm. he has quite literally infinite power to debt inflate without sparking a mass exodus/run on the dollar. the fdic insures 250k per insured deposit. that's money that can't by definition leave the money supply (assuming treasury extends line to bail out dif). the fed's balance sheet will probably end up well north of $5t. that 1 protects bank liquidity to prevent any sort of deflationary spiral like the 30s and 2 even protects the solvency of insolvent institutions. the liquidity won't get trapped anywhere without the fed's consent; the interest on excess reserves sequesters the funds until they're sufficient to be deployed into soaking up asset losses and inflating the real economy. for now, they sit as excess reserves and are being deployed strictly in equity/commodity markets. the "inflation" that is showing up in these markets goes to show the power of the federal reserve to combat debt deflation through dollar debasement.

Thu, 09/24/2009 - 12:43 | 78575 Leo Kolivakis
Leo Kolivakis's picture

Given all the liquidity, I agree with you that asset inflation will be the outcome. But don't be too quick to dimiss debt deflation down the road. If we get the W-recovery, the next leg down could be worse, causing all sorts of pain at financial institutions. The FDIC insurance is a joke (how many people you know have $250,000 in their bank?) and if unemployment explodes the next time around, then watch debt deflation come back with a vengeance. The erroneous belief that the Fed can easily print money to stave off debt deflation is extremely dangerous.

Thu, 09/24/2009 - 12:47 | 78581 naufalsanaullah
naufalsanaullah's picture

it's a matter of if the fed can inject enough liquidity to mop up debt obligations. the fed's power is effectively limitless, given the politicization of central banking, especially in regards to foreign creditors. as long as the usd can remain in debasement mode, debts can be liquidated through inflation (partial default at its essence). the money destroyed through deleveraging can, will, and is being mopped up by the money created by the fed.


Thu, 09/24/2009 - 12:52 | 78584 Great Depressio...
Great Depression Trader's picture

Chart man. Like the technicals. Respectfully disagree with your analysis. You say the fed "even protects the solvency of insolvent institutions". The reality is that the whole world knows that the US is sitting on some bad bad paper. So the banks are toast and so is there funding operations, absent the fed.

Next, US Gov expenditures. Understand that the US is spending money like a Orange County housewife gone wild. US is spending 900billion a year on defense (the wars, army, marines, air force, navy, VA, state department). Next, Social Security payments are going to drain the system more. The Fed will expand its balance sheet to 5 trillion as the currency gets debased badly. Also consider Fannie, FRE, FHA, AND GINNIE, who will all be losing money soon. No accounting trick will be able to hide these losses as the FED will then forced to monetize more?? Yikes.

Finally, the US is hostile for manufacturing. Good luck opening a factory anywhere. There is too much red tape in USSA. Fees, permits, licenses, restrictions, emmissions, environmentalists. Jobs will continue to flow out of the US as a result of the red tape.

But in the meantime, deflation will reign as people dont and wont have access to credit anymore. Remember, 6000 personal bankruptcies daily, with 300,000 foreclosures monthly. Credit scores are getting wiped out thereby curtailing credit growth. 3.5 trill in bad CRE, 5 million more foreclosures, plus tons of corporate debt blowing, the deflationary pressure will be too strong. Ben will have to literally give money away to everyone, not just a few financial institutions.

So deflation first, then inflation.

Thu, 09/24/2009 - 14:04 | 78673 naufalsanaullah
naufalsanaullah's picture

I agree deflation first, then inflation. I don't really know why you "disagree" with my analysis. The whole world knows the US is sitting on toilet paper, yes, but the whole world is in a position incapable of doing anything substantive about it.

When the entire world buys into a Ponzi scheme and the schemer has nukes to protect it, a run on the currency is not what occurs.


Thu, 09/24/2009 - 15:49 | 78764 Great Depressio...
Great Depression Trader's picture

The whole world knows the US is sitting on toilet paper, yes, but the whole world is in a position incapable of doing anything substantive about it.

This is where I disagree with you friend. As a citizen of the US you have a vested interest of this scenario playing out. Dont let your personal interest interfere with your knowledge and vision. Presently, the rest of the world is bailing out the US out of fear of disrupting the status quo of them exporting and us importing. True, the powers that be in these countries dont want the structure to fall apart and thus will put pressure to debase alongside the US. However, nationalism in those countries is much stronger and public outrage is much quicker to erupt. I was in Greece, Italy, Serbia, Croatia for the last seven weeks and MOST people knew the $$$ was trash. Europeans and Asians are smarter than our policymakers think. Remember how the laughed at Geithner in China RE: "your US assets are safe"? Even your typical Greek news hour lately discusses Bretton woods and how the dollar is toast, how Nixon severed the relationship with dollar and gold. People are knowledgebale, not like in this country where Prozac and Xanax have infested the minds of millions. Im betting on foreign governments pulling the plug on US bailout when the currency troubles begin to hit in EU, Asia.


Thu, 09/24/2009 - 19:27 | 79048 naufalsanaullah
naufalsanaullah's picture

What are creditor nations going to do when US debases to debt inflate? Liquidate their Treasury holdings? A run on Tsys would kill their own export-based, capital account surplus nations. Their biggest asset is our liabilities. This is a recipe for war, a war that America would undoubtedly win with its nukes. It would turn quickly into protectionist MAD arms race.

Thu, 09/24/2009 - 19:27 | 79049 naufalsanaullah
naufalsanaullah's picture

What are creditor nations going to do when US debases to debt inflate? Liquidate their Treasury holdings? A run on Tsys would kill their own export-based, capital account surplus nations. Their biggest asset is our liabilities. This is a recipe for war, a war that America would undoubtedly win with its nukes. It would turn quickly into protectionist MAD arms race.

Thu, 09/24/2009 - 14:11 | 78683 Anonymous
Anonymous's picture

to the chart man: better stick to charts

Thu, 09/24/2009 - 13:33 | 78630 Anonymous
Anonymous's picture

Graham and Dodd we are at 16.8% 25 % is not that far off Negative GDP second or third quarters of 2010 will do it !!!

Thu, 09/24/2009 - 12:44 | 78578 pooplagrande
pooplagrande's picture

Gold is overdone and will deflate with the market and other commodities. The underpinnings of the economy are filled with dry rot and it is simply covered up by heavy gov. medication. They can keep the game going for a bit longer, but the truth will rise to the surface and people will shed their summer dresses like a drunk sorority girl on spring break.

Thu, 09/24/2009 - 13:08 | 78608 RagnarDanneskjold
RagnarDanneskjold's picture

The Fed can only create debt. The Treasury controls the printing press.

Credit derives from the latin word for trust. Debt can only increase in a system that is trusted by the people. If they do not trust the debts can be repaid (by themselves or others), they will not borrow and the banks will not lend, and deleveraging will take place.

Trust can be restored through the creation of paper, a transfer of trust from the currency to the debt. The people lose faith in the currency but trust that debt can be repaid.

People who expect high inflation should find out what the presses are up to...





Thu, 09/24/2009 - 14:20 | 78679 DBLTapViper
DBLTapViper's picture

Mish wrote this - And I find the truth in it to be..... wonderfully simple!

Bernanke is not a wizard and neither is Greenspan. The difference is Greenspan had the wind of consumption blowing briskly at his back. Bernanke is on the backside of Peak Credit with a breeze of frugality blowing briskly in his face. Attitudes make all the difference in the world.



Thu, 09/24/2009 - 14:46 | 78711 Anonymous
Anonymous's picture

Fundamentals affect investor decisions.
TA affect trader decisions.
Fiat is a tool used by owner's to acquire control.
The US stock market is 20% controlled by 1/10 of 1 percent of shareholders.

The fiat value of shares is pointless, the objective is total control of production of goods and services.


This paper describes the backbone ownership of 48 countries by 50% voting control. 24 pages of interesting math!

40muleteam borax

Thu, 09/24/2009 - 18:26 | 79001 River Tam
River Tam's picture

Great analysis.

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