20130508
Source: Chart of the Day

 

The US stock markets continue to rally this week, with the S&P 500 trading up on the week.

A longer term look at the S&P 500 since 2000 illustrates both the post dot com comeback and and the post-financial crisis rally. The latest leg of the post-financial crisis rally has the S&P 500 breaking above resistance created by the last two all-time record highs.

Ample liquidity, strong profits, and mixed sentiment seem to be the drivers here . . .

 

Category: Investing, Markets, Technical Analysis

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

20 Responses to “S&P500 Long Term Breakout?”

  1. PeterR says:

    SPX 1700 has looked pretty do-able for months IMO.

    Have a good weekend.

  2. Mike in Nola says:

    “ample liquidity”? Something of an understatement

  3. san_fran_sam says:

    Actually, the market is just waiting for me to get in. Then it crashes. In fact, my colleagues at work with whom i discuss the stock market have asked to let them know in advance when i get in. So they can get out.

  4. C’mon Barry, you know sustainable secular-bull breakouts don’t take place with the fundmental metrics at these levels (e.g. P/Es and Earnings/GDP ratios). Not to mention debt burdens etc.

    From 1966-1982 the Dow flirted with 1000 no less than 5 times before finally breaking loose on the 6th try. However, the S&P during the same period sent two serious fakeout signals. There was a false breakout signal in 1972-1973, “breaking out” from the prior peak of 108.37 set in ’69 and going up 10% more to 119.87. (The Dow went along with that one too.) The S&P again “broke out” in 1980 and went from the prior peak of 119.87 up to 140.52… but then dropped over 25% (back down to 104) before finally breaking out for good in late 1982. In every case, the tide ebbed and flowed quite a bit. Even in 1981-82 with the market’s breakout past 140, there was an opportunity in ’84 to get back in at 149 (and to have made about 30% in Treasuries over the intervening 3 years).

    Is this time really different?

    Link: http://stockcharts.com/freecharts/historical/spx1960.html

    I’d be more comfortable with the “long term breakout” thesis if liquidity wasn’t already dialed to the max, if profits weren’t already at historic highs, and if profit growth wasn’t sagging badly. I don’t see where the fundamental headroom is, other than speculative momentum and sales hype.

    Disclosure: Still riding the wave because the tide hasn’t gone out yet, but with a reduced, defensive allocation to equities.

    P.S. I remember some guy named Ritholtz who wrote on July 10, 2012 apropos of “The Long-Term Argument for Dow 20,000 (NYT)”, “Perhaps, but from a lower level”.

    Link: http://www.ritholtz.com/blog/2012/07/10-sunday-reads-9/

    • MikeNY says:

      Well said, S.G.

      Ben Inker at GMO has a pretty good piece this quarter on reversion to the mean, and what it would take, societally, to sustain these historically high profit margins.

      It aint pretty — and it probably aint possible.

  5. dctodd27 says:

    One might wonder whether this breakout signals the beginning of a new secular bull market, which is highly improbable. So the question then becomes do we want to speculate if and how far the market runs in the short-term? The answer is nobody knows so why try? Buy what’s cheap, diversify, and don’t use leverage and you’ll be fine…

  6. I’m not sure ‘people’ realize, just, how highly Geared these ‘Markets’ are..

    with that, a couple of thoughts..

    just because current ‘Metrics’ seem “off the Charts”, doesn’t they, still, cannot reach *deeper into ‘uncharted territory’..

    and, really, if We get someone, like J. Yellen, as FedRes Chairman, “the Bernank”, along with his sedated look, will look sedate, by comparison..

    as always, the Question: “Basis which?”, will remain ‘muy Importante’..~

  7. Lamont says:

    This breakout is based on strong earnings? Operating earnings per share last quarter were the lowest in a year and a half. And earnings are only this high because companies are reducing share count and refinancing all their debt at essentially nothing, reducing interest expense. You take those two things out of the equation (and we’re already discounting often shady one time write-offs) and you get an extremely weak earnings picture. This entire rally from 1070 in the fall of 2011 to 1630+ now is based almost entirely on multiple expansion.

  8. Gulfcoastm says:

    Barry, sometimes I really enjoy reading the comments section, some have something to offer. I would think that if these people don’t like you they would go away. I won’t hold it against you if you discontinue remarks.

    Thanks for THE BIG PICTURE

  9. Randel says:

    Let BR have some fun being bullish; enjoy this world wide QE party.
    The real question for BR and Fusion IQ: Is the secular Bear now over?
    Or is this a fake out as Sustainable Gains suggests?

  10. chartist says:

    That rising wedge breakout, using the dotted red line, was how I came to the SPX 2070 target.

  11. sellstop says:

    Thank God for skeptics

  12. sellstop says:

    I actually made the comment to someone a couple of years ago that “everyone is a contrarian now”.

  13. gregory barton says:

    The breakout is marginal. However, if the Dow is a leading indicator there is a good chance that the S&P will consolidate above the 1,620 level.

    Reversion to the 50-year mean would take the S&P500 to around 1,700. Good chance of a new “secular” (dreadful word) bull market, despite the concerns of the timorous and the story tellers.

  14. mitchn says:

    So, the government of Japan has applied a liberal dose of Super Glue to its metaphorical foot and then jammed it onto the monetary pedal. Good for the dollar, bad for U.S. exports. Do you think U.S. multinationals are going to press for Fed tightening? What about the Eurocrats? Doubt it. It’s a QE world….

  15. constantnormal says:

    My own two cents worth … And probably worth less than one cent … When in the past have we ever seen national economies so synchronized in monetary policy, with central banking authorities more-or-less of one mind in suppressing recession and deflation via QE or outright money-printing (“Abenomics”)?

    I contend that past metrics are no longer valid, we are writing new history (that will probably not have a happy ending) … I suspect that the only thing that can (and ultimately/eventually will) let the air out of this global gasbag economy is a chaotic collapse in the hierarchy of leveraged debt that we are piling up, almost certainly acheving critical mass when our global web of unregulated, unaudited swaps implodes, probably via some glorious investment bankster-inspired fraud.

    I doubt that diversification, gold, farmland, or much of anything else will provide much of a safe harbor, when the accumulated global leveraged debt of somewhere around an order of magnitude more debt than the global GDP goes toxic. Then we will finally see reversions to means all around the globe, and the ensuing torrent of outrage and upset will, as it has in the past, provoke conflicts and wars.

    But I have no clue as to when this might occur … Could be next week, next year, next decade …
    I haven’t a clue. Chaotic collapses give no reliable clues as to when they begin. And I think that we’re in too deep — and have been that way for quite a while — for any kind of fantasy-unwinding of the sort that central bankers dream of to actually take place. The momentum they have created is unstoppable.

    So pour another cup from the punchbowl, party on, and hope that you and yours are long gone before the day of reckoning is upon us …

  16. bear_in_mind says:

    @constantnormal: I agree with your general thesis.

    The potential unintended consequences of numerous central banks engaging in manipulation of interest rates, currencies, and equity pricing is reason for confidence – until it’s not. You also add HFT to the mix and “the invisible hand” has become severed from Mr. Market.

    Despite many differences between now and the final legs of the 2000 dot.com ramp, we’re starting to see stocks exhibiting more volatility (i.e. 5 to 20 percent in a day) that gives one reason to pause. When that kind of price action starts spreading, retail investors are often lured into chasing returns, which is exactly how the retail crowd gets trapped buying at a market top. Of course, most retail investors don’t have much skin the market at this point.

    Having the big-boys slugging it out may modulate price action… or not. Impossible to know until you’re looking in the rear-view mirror.

  17. Willy2 says:

    To believe this is a “Long Term Breakout” I need to see a number of indicators to improve. And my favourite indicators (e.g. rising USD) actually point to more trouble in the (near) future.

  18. Pantmaker says:

    The market forces at work here are as old as the hills. We are here because of artificially low bond yields spooking the horses into a ponzi panic on the equity side. Keep an eye on the ticking time bomb of student loan debt….like the banks, they want a money stuffed pinata party too now. We are well into the rabbit hole and the LSD is really starting to kick in.