I got prompted by reading a chart posted on the web by Mark Wilson of Morgan Stanley to start looking at the longer term trends of equities this morning, and here’s some preliminary technical results. Lets start with the S&P 500 (weekly candles) that he looked at himself.
I think I could write a book about this chart… Quick quips:
Heads and shoulders above the rest?
The white trend lines were courtesy of Mr. Wilson. His chart, however, started in September 2009, so some of the great market action is not considered here. The arrows indicate shoulders (yellow) and head (green). Notice the little shoulders on the sides of the head. Is that a call for S&P 500 hitting 800 within a few months? Interesting to watch!
Take good note of the blue parallel lines. They have had some pretty impressive action with them over the last few years, and the start of the bottom blue channel is nothing short of excellent with the wedge/cup’n’handle’n’handle action that started it off in 2007.
Break points or Duracell endurance?
Regardless, this means that in the next few weeks the markets are primed to break either way, and either continue the strong rally (yellow line) or fall back and complete the Head and Shoulders pattern. These rallies are “strong” in the conventional sense, but more careful analysis of where they take interim pauses is pretty discouraging. Also, the diminishing nature of the length pretty accurately reflects quantitative easing efficiency, and things therefore look rather gloomy at the moment, even if the printing presses run up. Using this analysis, there was indeed a year-end rally, and the next question is mostly a matter of where things will break to. Take your pick, carefully. Point of note: the dark blue line is your best indicator for where things will go, given how fuzzy the frenzy of the yellow lines can be. It holds and causes upwards breaks, or QE is initiated = rally. It fails considerably and the light blue line acts as resistance? Get out of dodge!
A quick reminder is that Norwegian and UK markets look a lot like the S&P, but instead of a rising neckline, they keep flat ones. Similar plays about there, but you don’t have the strong rallies, so if there’s something to watch for for non-euro european markets longer term, look at it in the S&P first!
Stockholm OMX 30, monthly candles:
Monthly chart over the last 13 years (there is a jump in the chart, don’t dwell on it too much – I didn’t).
The same sort of channel play seen in the S&P can be done here as well, and conveniently drawn with white solid lines as well. Keep track of the yellow line though, it’s the most imminently actionable and a huge thing for the post-Lehman world order in Swedish equities. Keep in mind as well, these are monthly candles, the bottoms of each are rather impressive and important technical levels, being able to draw this many lines between important levels is nothing sort of shocking! So, expect a surf upwards if it breaks, targeting the white channel top and potentially the blue triangle “master line”, or a pretty messy battle over at the white dashed lines.
Swimming with your breath just above water?
The white dashed lines represent rather important head and shoulders levels. Also, if they truly come into play again, it’s questionable whether the white trend channels can hold, and it becomes more of a practise of targeting intermediate levels all the way back down to the blue triangle bottom! Fingers crossed it doesn’t come to that!
Zigzag snake is out to bite you?
Just look at the orange lines. That system seems to have been temporarily broken… is it just because the snake has stopped side winding its way around and is ready to bite, or is it just ready to go to sleep again? It’s another of those rather unfortunate looking things that can either cause the market to rally impressively or cause it to fall like a rock. A quick reminder is that Sweden is doing extremely well fundamentally, but that it is also heavily reliant on other countries’ well-being to fuel their exports. So… fundamentally not much more clarity…
Saving grace is…
Magic-D (2-6-2 years) looks set for a turn higher! It’s posting many many bullish signals here, but I have not used it on these long time frames before, so I’ll be wary…
Hang Seng, Weekly
Tea anyone? I want some leaves to help me with the analysis, so there’ll be plenty of it! This is mostly to round out the analysis and include Asia in a corner as well.
The white channels (down) look strong. The question is: can we ever return to the yellow channels? Again, as posted about for my new years dumpling dump, there’s a little bit more triangle work cut out, but the top yellow line has been one that’s been in force since 2003! Leaving it so remarkably could spell a paradigm shift…