Wednesday, 16 January 2013

S&P 500 and ASX 200 resistance at multiple trend lines suggests very limited upside potential for both

Let's start with the big picture view of the most important stock index on the planet, the US S&P 500. If you've followed me for a while you've seen the first chart before. I make no apologies for that. The S&P 500 is testing parallel trend line resistance. Bearish divergence on the MACDH warns that momentum is weak, so look for a reversal. The market has poked briefly above the trend line, and could poke above it again, though that is not required. Only a move above 1500 would invalidate the immediate bearish case.

Zooming in a little shows the S&P 500 is also testing different multiple trend line resistance on the weekly chart.

Most of my readers are Australian. I believe that the old saying "if the US sneezes we catch a cold" still applies, so any coming downturn for US stocks will have bearish implications for Australian stocks. Others may believe China will save us. Don't kid yourself. Shanghai's recent rally is a blip within the context of a huge ongoing bear market. Similarly, the rally on the ASX 200 is also pathetic within the context of the bear market that began in late 2007, as illustrated by the following weekly chart. This market is weak. Note that it is also testing trend channel resistance.

Zooming in to recent action for the ASX 200 shows the market testing trend line resistance at the top of yet another trend channel. So long term charts, short term chart, however you look at it, multiple trend line resistances suggest limited upside potential.

Play safe.

Off on a bit of a tangent now. It will be interesting to see if the still ongoing Gold bull market can withstand a turn lower by US stocks. I fear it won't, but will continue to take action based on the charts of Gold itself. Why do I fear for Gold? Study history and you will see that bull markets in Gold have almost always occurred when the economy is growing. If stocks turn down and the economy contracts, there is no place to hide but cash.