Time is the only thing that will heal this economy and heal the markets. Until sufficient time has passed, the markets are just treading water. The markets are likely to remain in a range between the November, 2008 lows and 1000 on the S&P500 for a very long time. That is ok as this buys time, which is what the markets need.

The markets have to consolidate in this range before they can move higher, and the only thing that investors have left to ponder is this: will the November, 2008 lows hold. I really think it is that simple.

It appears that prices are headed to those lows, and we should see the obligatory test and bounce. These lows should be bought by investors as this is what traders will be doing, and for those with a longer term perspective, this could represent an opportunity of a lifetime as stocks are on sale and likely be supported by value hunters.

Figure 1 is a monthly chart of the S&P500. The double bottom between the 2002/ 2003 lows and the 2008 lows is easily seen. What if the recent lows don't hold? Then I can see prices trading down to the very long term trend line drawn from the 1982 lows. This corresponds to about 690 on the S&P500.

Figure 1. S&P500/ monthly

Now all this is going to take time, and the longer the better. Figure 2 is a monthly chart of the S&P500, and the indicator in the lower panel is our "next big thing" indicator, which seeks to quantify technical factors seen at secular trend changes. Our current trend is bearish, and the indicator continues to rise suggesting that the potential for a bottom is months away. I say "potential" because the indicator only identifies when a trend change is likely; technical factors (i.e., a moving average crossover or some such other metric) are used for confirmation of a trend change. As you can see from the figure, this indicator has done a good job at identifying the bottoms seen 1974, 1978, 1982 and 2002. What did these bottoms have in common? They tended to be associated with high volatility and a sudden reversal of prices.

Figure 2. S&P500/ monthly

The bottoms seen in 1988, 1991, and 1995 are all noteworthy because the "next big thing indicator" didn't reach extremes levels seen in past bottoms. However, these bottoms (1988, 1991, and 1995) are low volatility bottoms and came about due to a prolong period of base building. In the current market enviroment, this kind of base building would take months of sideways price action.

I recently looked at another method of determining "When We Can Expect A Sustainable Price Move" , and I came to a similar conclusion. If prices on theS&P500 traded at their average price over the past 2 months, it would take about 8 months before prices closed above the 200 day moving average.

Once again, it is all about time and there is no escaping the time factor.

By Guy Lerner

http://thetechnicaltakedotcom.blogspot.com/

Guy M. Lerner, MD is the founder of ARL Advisers, LLC and managing partner of ARL Investment Partners, L.P. Dr. Lerner utilizes a research driven approach to determine those factors which lead to sustainable moves in the markets. He has developed many proprietary tools and trading models in his quest to outperform. Over the past four years, Lerner has shared his innovative approach with the readers of RealMoney.com and TheStreet.com as a featured columnist. He has been a regular guest on the Money Man Radio Show, DEX-TV, routinely published in the some of the most widely-read financial publications and has been a marquee speaker at financial seminars around the world.

© 2009 Copyright Guy Lerner - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Guy Lerner Archive

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.