The caution light has been on for a couple of weeks now. The daily chart of the SPX shows a
breakdown is underway following the powerful rally from late Nov. '11. SPX Chart
The market is 1.9% below its 25 day m/a. In bull runs, going long at -2% to -3% the 25 day m/a
is an ok deal, so that would be the first test here. The safer bets have been at 5% or more below
the 25 day m/a. My cycle work, which has been less reliable over the last 6 - 9 months, suggests
a cycle low should be chalked up over the next 10 odd trading days (Grab a grain of salt). A
"normal" correction following an interim strong bull run of several months duration would run
5 - 7% and would take the SPX down into the 1320 - 1350 range. Unfortunately, since 2010, the
market has been in more of a feast or famine mode (risk on vs. risk off), and price corrections
off of nice run ups have approximated -15% to -20%.
It would be lovely to rally decisively from the current modest oversold, but no one should be
surprised to have to come to grips with a 5% move below the 25 day m/a given the volatility
seen in the market over the past two years.
Note that the bottom panel of the chart shows the long Treasury which has been catching bids
recently. Long side interest in the 30 yr. bond has been a good measure of risk off trading in
the capital markets.
At this point, I plan to wait and watch for a couple of weeks as I have not yet abandoned the
idea that the market could re-start up again by then following a period of mild correction or
- Peter Richardson
- Retired chief investment officer and former NYSE firm partner with 50 plus years experience in field as analyst / economist, portfolio manager / trader, and CIO who has superb track record with multi $billion equities and fixed income portfolios. Advanced degrees, CFA. Having done much professional writing as a young guy, I now have a cryptic style. 40 years down on and around The Street confirms: CAVEAT EMPTOR IN SPADES !!!