In a previous post I discussed using the larger view of monthly charts. These are available at www.tradingview.com
. But we can even go a step up from there and check quarterly charts. This means each bar is 3 months worth of price action. I don't know of a free site with access to these (please comment if you do) but they are an option in some trading software packages.
Let's look at the benchmark S&P500 today, and in future posts I'll discuss some others. We can see mostly up from early 1980s lows to 1987 top, then a 1 bar drop which held support at the rising 20MA (orange line). After that a slow move up, then explosion higher from about 1995 to the 2000 top. After this a large bear market drop to 2002 lows which held the rising 50MA (purple line); then a steady move back up to highs in 2007, followed by a sharper drop that broke outside the Bollinger band at the 1Q 2009 low.
Some key points.This bull market from 2Q 2009 is much more difficult than the last two.
The move from 1982 to 1993 took its time and had some major pullbacks along the way, but nothing broke monthly support. Aside from two smaller red bars in 1984 the other pullbacks were contained to one quarter. So that whole move was the first phase of a larger bull market that went to the 2000 high. The launch from 1Q 1995 turned into a phenomenal rally with 19 blue quarters compared to just 2 red quarters. There were some significant pullbacks late in the rally, but each held the low of two quarters back.
Next check the bull market from 2002 low to 2007 high; that had 15 blue bars, 1 doji bar (unchanged) and just 4 small red bars. In that environment seeing a little bit of red after larger blue is easier to sit though. The red bars did not threaten the uptrend until late 2007 when it was overbought and near the top of the monthly Bollinger band, which was the ideal time to be exiting long term investment positions. In other words, a nice buy and hold environment existed for a large portion of several decades:
1. From 1982-1994 even including the "crash" (in quotes because all losses were recovered in less than 2 years);
2. You could throw money at the market from 1995 to 1998, and then still plenty to be made until the early 2000 top;
3. And a nice smooth ride from 2002 to 2007.
In contrast the current advance from 1Q 2009 has had 2 significant quarterly drops; even last quarter tested the low of the previous one before paring losses. So this means there are already 4 red bars with 3 of them containing larger drops compared to 9 blue bars. This is a much higher ratio of red than the previous advances! One red bar tested the low of 2 quarters back, and last summer's sell-off broke the lows of 2 bars back. It is much harder to buy and hold on this rally.
This means from 2007 we are not in a buy and hold market. That's 5 years. Can it last longer like this? Yes, quite a bit. Where is it going?
There is no guarantee we see the upper Bollinger band, but if we do it will face price resistance at the close high and absolute high of the 2007 top. These are shown by the horizontal blue lines. In addition, even if the market is able to rally from 1375 area where it is today up to 1550 the Bollinger band will still be flat or even downward sloping; which means it is more likely to act as resistance. Bottom line is that if (IF) we see 1550 then that really could be a significant high.
If the rally stalls and it cannot reach the upper Bollinger band, then conceivably the next drop should visit the 1190 area at least and possibly the lower Bollinger band. As it stands now the quarterly chart has a low outside the lower Bollinger band and recent high inside; this is much weaker than the move from 1982 to 2000. The 1980s and 1990s bull market had lows well above the lower band, and the 20MA held as support the entire move! And there were several months of highs outside the Bollinger band indicating very enthusiastic buying.
If anything this current 2009+ rally is just getting tougher. 4 healthy blue bars, then 1 red; 3 blue bars, 2 red; 2 blue bars, 1 red... a string of 3-4 up quarters like previous bull markets is just not guaranteed! That said I think timing factors mean this quarter has a very good chance at a solid advance and healthy blue bar. But I'll be very careful to watch various resistance levels on other timeframes (monthly, weekly, daily) because it is possible that one or two more up bars (on this quarterly chart) are all we are going to get. To really see the move
check chart #2. This is actually the same chart and same index but in log scale. This shows the bars as percent moves rather than absolute numbers. In other words, a 100 point S&P rally mean a lot more in the early 80s with the index itself at just 100 (so that would have been a 100% move). But today 100 more points is a lot less in % terms. The second chart makes this clear. In this chart it is even more obvious that the market has been sideways from the 2000 top. A typical move from here would be
up to the top of the Bollinger band, rejection from there to support which is currently 1190 area, then a turn up from there could produce new highs. All this could take many quarters to play out (which means 2-5 years). Even in a bullish scenario it would take a lot of buying strength to power through the 2007 high area, which just doesn't seem likely given the struggle of the advance so far. In other words even if up market will probably have a significant decline from that 1550 area.
A more bearish scenario would be failure before reaching 1550, then break of 1190 support and a sharper drop. It will be interesting to see what happens.