Monday, December 19, 2011

My take on the US S&P 500 Index is not Pretty - Why I am VERY Bearish

Today I am posting something out of character for this blog, I am posting my technical view on the US SP500 Index. Note: I am not a professional investor or financial advisor; I follow the markets as a hobby, so please do not base your financial decisions on this view. 

I am merely asking some questions that have to be asked. If you want, maybe you could take this view to your financial advisors to discuss it with them.  

Most agree that the state of the US economy directly affects the rest of the world including South Africa. That's why it is prudent to follow the US economy. And if this technical perspective is correct the US economy may be heading for a massive reversal (crash).  

Take a look at the following chart I compiled from MSN Money, it is a long-run technical view on the US S&P 500 index; one of the largest stock exchanges in the US. This index is widely considered to be a proxy for the US economy. 

My Take on the US S&P500 Index - 19 December 2011

Being an investor, not a trader, I like to take a long-run perspective on the markets. When considering the S&P 500 from 1955, we clearly see the formation of a possible triple-top reversal pattern (note peaks 1, 2 & 3) on the chart (1995 to date). We also find a possible head-and-shoulders reversal forming from August 2009 to date (look for the H,S,H in the chart). 

Both the head-and-shoulder and triple-top patterns are very bearish signals. Many of the technical guys see the Head-and-shoulders as a reliable technical signal. When two bearish patterns are combined the position should be regarded as even more bearish.

The possible downward movement is usually projected from the top of the pattern (point 2) to the neckline (line AB on the chart). In this case,  if a bear trend starts, the DECLINE MAY BE MASSIVE! 

Another thing technical analysts look for is declining or increasing volume. In the chart,volume appears to be declining along with the formation of the Head-and-Shoulders. It is a highly bearish signal when the HSH pattern goes up and volume goes down (what appears to be happening in the chart). 

Also note that peak 3 on the chart is lower than peak 2; another very bearish signal! 

So, what I am telling you? 

I think that it is time to re-evaluate our stocks and portfolios. We had a nice run since 2008 and the US economic sentiment has improved a bit lately. But, this may just be short-term noise locking us in for the proverbial "bear falling out of the window" if I am right (hope I am not), the fall will be massive! 

Don't agree with me? I would really like to hear your view. Please comment below.

1 comment:

  1. Very interesting - investor beware and ignore at your own peril...


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