Tuesday August 7, 2012
It's only 100 points from the 1400 area the market hit today to 1500. Is that realistic, let's look at the last time the SPX was there.
The SPX topped 1560 between October 8-15, 2007. The Moving Averages are headed up and the CCI is not overbought yet. How can we make judgment as to how much potential power is left, ie, cash to come to fuel an equity rally. A ratio chart comes to the rescue.
SPX relative to TLT
If the markets are eventually going to crash again, it only makes sense that the markets have to regain the same level of hubris and risk on attitude they exhibited before the last decline. Here is that picture. The old 2007 high in the SPX occurred when SPX was 21 to one the value of TLT. Now it is only 11. with TLT trading at 125, it could fall a good deal to provide the funds to power an SPX rally.
Crude Oil Versus TLT
Crude oil is nowhere near its old 2008 high.I don't know that we will have a repeat of that but a fire at a Chevron refinery today has 'analysts' talking $100 crude already. Throw in rumors of an Israel attack on Iran and we shall see.
We showed a potential trajectory for TLT this past weekend. So far we are right on target, here is what happened today. It looks like TLT is now in powerful third wave down. Our count, see this past weekend, has the third wave ending around 121. That looks realistic so far. Note the huge gaps at the start of the trading day. Small investors are in a panic, throwing in market orders on the open causing an imbalance of sells versus buys, which results in a gap. A gap occurs when the there is an imbalance of sell versus buy orders. The sell orders are overwhelming the buy orders, and so price has to fall to find a balance.
but then that is what we thought would happen.