Long-Term Chart Caveats For Equity Bulls

Tyler Durden's picture

While relying on technical analysis and chart patterns may lack the academic rigor that fundamental analysts (such as Bill Miller) and economists (such as Joe LaVorgna) assume, it seems that relying on the reality of what is actually going on within businesses is a fool's errand currently. Furthermore, the just-around-the-corner nominal price action impact of a Fed-driven QE3 expansion is on every long-only manager's mind as good is bad and bad is great. As an antidote to this enthusiasm, Dolmen Securities note two longer-dated chart analogs that should provide some food for thought for the more bullish equity investors (which now represents the massive majority of individual investors). The 115 year Dow chart points to sideways price action in a broad range to an 80 year trend at best while the analog to the wave structure from the 2011 peak in the S&P 500 is echoing 2007/8's pre-crash levels rather accurately. While neither chart portends or guarantees an imminent precipice, given earnings downgrades and the box Bernanke appears to be increasingly squeezed in, perhaps they signal the flush that the market needs as an excuse to ramp up the printing press one more time.

While history does not always repeat, it certainly seems to echo.