S&P 500 on Daddy Dow Downer Street ~ The Risk Averse Alert

Thursday, March 07, 2013

S&P 500 on Daddy Dow Downer Street

We can easily take the Elliott wave view assigned yesterday to the Dow Jones Industrials and apply it to the S&P 500...

What you see labeled waves 1 and 2 [of c of (b)] projected to unfold over coming months just as well could prove to be waves b and c [of b of (b)]. However this would not change what follows. Labeled above wave 3 of c of (b) simply would become wave c of (b). It's component 5 waves down would, themselves, complete wave c of (b).

Elapsed time for what's labeled waves 1 and 2 could extend into late-summer. Both this projection's duration, and fluctuations as shown above, hasten memory of an outlook presented here some months ago featuring a head and shoulders top unfolding in the S&P 500, completing this year and presaging a hard turn south. This same prospect loosely suggested above, were it to come to fruition, particularly were volume to contract further still as the S&P 500 bounced off wave 1 low (as is to be expected in formation of a head-and-shoulders top's right shoulder), could make for a bad 2013. Indeed, possibly a year, too, marked by both a significant high, as well as a lasting low. This possibility likewise presented here some months ago remains living.

Several cycle-based curiosities I have taken note of over the years support this outlook in its entirety. First are the presidential term cycle and the decennial cycle. The former finds the latter half of 2013 notably weak, as well as registering a significant bottom. The latter is gently trending lower more or less over the entire duration of the third year of the average decade since 1870 (you read that right), likewise marking a significant market bottom for the decade. Other cycles of interest are 10- and 12-year cycles. The former either bottomed in October 2011, or might find its actual bottom later this year (March 2003 marked a significant bottom, one in fact I recognized). The 12-year bottomed in 2010 and is currently in its rising phase. Duly noted is the fact the 12-year was early in its rising phase in 1987, as well...

So, the case for an upcoming, significant market bottom gains support in cycle-based evidence.

At the moment, given the above Elliott-wave based possibility, there's likely more upside remaining. First, the market's advance off its February 26th low is seen ending over the next day or so. By my estimate tomorrow is shaping up to bring a decent lift. Yet this is likely to be reversed to the ultimate effect of bringing both daily RSI and MACD below their respective reads of December 28th, 2012 when the 2nd wave of 5 waves up from mid-November 2012 was bottoming. Typically, Elliott 4th waves are accompanied by technical deterioration relative to their preceding 2nd waves. Having yet seen this via RSI and MACD above, we might assume the 4th wave of 5 waves up from mid-November 2012 currently is still in the process of forming, having begun at the S&P 500's February 20th peak. Once it in fact is completed, then the 5th wave of 5 waves up from mid-November 2012 could carry the S&P 500 yet higher.

Yet probably not much higher. Building underlying technical weakness rather indicates the stuffing available to continue pushing the market higher is thinning.

Word on the Street
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