Bearish on the Market-SPX Target=1150

Discussion in 'Trading' started by michaelscott, Jul 1, 2007.

  1. Oftentimes when a thread about being bearish on the market is posted, you find a lot of folks attacking the messenger and not the actual message. The weakest response to any argument is to attack the messenger and not respond to the actual points in the message. One reason why folks will attack the messenger is because they can come up with no valid argument against the actual message.

    The message is the following. The SPX is going to 1150. Every index and measure of the market is breaking down. The only thing propping up the market is a few leading stocks and if anything happens to them then the market will fall fast and furiously.

    The facts are the following:

    1) The market is a giant staircase in which it runs in 15-20 year cycles. The market will run straight up for 15-20 years and then follows a consolidation period of 15-20 years. We are only 7 years into the consolidation period. If the SPX were to break through the 1550-1600 level then it will be the first time that the chain of events will be broken.

    2) The ten year yield has no place to go but up. It will of course pullback from time to time, but the general course is up up up. We are no longer living in a sub-5% TNX environment.

    3) Oil has no place to go but up. A floor has been placed underneath the price. Say goodbye to sub-70 dollar oil and triple digits will be seen in the future.

    In looking at the 20 year chart of the SPX from 1980 to 2000, it appears much like Apple computer the last few years. The index went straight up without looking back. That my friends is a true bull market. Cheap energy, downtrending TNX, low inflation.

    Now we are in an environment much like the 70s where the SPX will run up to the line and then retreat like a bunch of Iraqi soldiers during the initial invasion. Of course there will be money to be made, but only by those who recognize what is going on.

    Therefore the SPX will retreat back to 1150 before moving forward to 1550 once again. This wont happen in 2 years, but in the months to follow and by the end of this year we will be wondering what in the hell happened.

    The volume on the SPX in June hit an all time record. There was only one up week in June, only one weekly bar of green while the rest was red. So I ask you, when there is a high volume sell on a chart, what do you think and believe will happen next?

    Consider this, despite a record of volume on the SPX, it still failed to go through the all important 1550 barrier. Instead it pulled back and is now making lower highs and lower lows.

    Now I want to hear the arguments that attack my message, but I feel I will only receive personal attacks and jabs. What are the reasons as to why the SPX will now break through the all important 1550?
  2. I'm not bearish on the SP 500. Its valuation is relatively undervalued based on historical perspectives. The current state of the world is one of optimism and technology revolution is still at hand.

    The rebuild of old infrastructure is way behind in most parts of the world, especially BRIC countries. The cost of money is cheap with interest rates very low.

    The carry trade is still in full force. The Chinese populace working hard to produce goods that we buy at a discount. As we spend as a nation beyond our means and export wealth. That wealth gets devalued, but it still is meaningful wealth to the underdeveloped nations of the world.

    Low interest rate environment in the Asian region, favors that wealth to seek higher returns in terms of speculation. Plus that devaluation, the need for its conversion to hard assets such as investment in conglomerates or companies is needed. IE China's investment in Blackstone. So a reinvestment premium is also being built in equity markets.

    There will be short term psychological pessimistic headfakes. But if you want to live in fear, might as well walk through a Rio neighborhood sporting a rolex watch.

    The sp500 will test 1600. Before it tests 1250.00
  3. Another important aspect:

    Concentration of wealth, mainly petro dollars are being concentrated in oil conglomerates. Those conglomerates are US/Russian/Arab nations.

    As the price of oil heads above 70 dollars, windfall profits are made. It fuels further Russian market growth. Plus if oil companies want us to tolerate higher prices, they have to keep equity indicies supported with also low interest rates.

    Your also fighting the Bush/Oil/GOP/Arab/Wallstreet factor. This is a very powerful force. If the GOP wants to win the next election, Oil will be contained at around these levels, this level still means huge profits.

    But those petro dollars get funneled into supporting US markets. With US dollar diversification favoring, Euro currencies mainly by Arab nations.
  4. S2007S


    Im bearish as well but 1150 on the s&p is a little out of hand.
  5. Michael,

    I respectfully disagree with you.
    If the markets drop, the fail safe level for the markets is the long term rising 20 month moving average on the SPX (roughly 1360).
    At that level, mutual funds, retirement account managers, large brokerage houses and the Plunge Protection Team will all step up to the plate to prevent a change in the long term trend.
    My best guess for the rest of 2007:
    Markets go sideways with a slight downward bias that might possibly take the SPX to its rising 20 month moving average.
    Then around October or November, the money managers will start driving up the markets, so they can get their year end bonuses.
    Same scenario year after year, right out of the M.M.'s play book.

  6. Ok, I wrote this down. 1150 before 1550! Do I have that correct? :D

    Are you putting your money where your mouth is at? :p
  7. I wouldnt say 1550.

    As a safety, I would use a 3% margin like most traders do. So on March 24, 2000 the SPX reached a high of 1,552.87.


    Round it up, 1600. Thats the magical number to hit. Not just to hit, but to smash with volume. If that number isnt smashed, then the market will retreat. History tells us that the market either moves up or it moves down, but rarely does it chop from side to side at one level. So if the trend is not going to be up, then it will be down, simple enough.

    By the way, a historical fact is that on March 15, 2000 the SPX closed at 1392. So it took 9 calendar days for the SPX to go from 1392 to 1552 on 1/3 of the overall volume.

    Today, it takes 3 months for those types of leaps. The question to answer is why. We have 3 times the volume, more leverage and less shares in the marketplace with so many buyouts going on. Why isnt the index smashing through 1552? The volume is there, the leverage is there and the float is smaller.

    The simple answer is that there are far too many sellers at 1552 then there are buyers. June was a distribution month.

    In this market, things work much more slowly then in the markets of the past. However, volatility contraction always leads to expansion and vice-versa. The markets of yesteryear operated on a vix routinely over 20 and sometimes up to 40. I can only imagine that environment returning when you least expect it.

    As for putting my money where my mouth is, I would rather sit on the sidelines with money in hand so I can buy shares when they go on sale.

  8. patoo


    Ah, the truth comes out. .....

    ur chicken!
  9. How do you know the time to buy? Tomorrow's sale may be better than today's!
  10. Your correct sir. I am chicken.

    Just as you should fear God, you should also fear the Market.

    It was Jesse Livermore who stated that if you do not understand clearly with how a stock is traded, then you simply shouldnt trade it.

    It was Warren Buffet who stated that the first rule of the day is not to lose money.

    It is general knowledge that the market falls quicker then it moves up.

    Am I scared of the market? Of course I am.

    There are many courses that can be taken at this point. I do not straddle and so that is not an option for myself. Instead, I choose to wait on the sidelines with cash in hand ready to buy when the dust settles. When that will happen, I do not know, but will not trade through an environment where I am not certain the end result.

    We do not know if the SPX will go over 1550 and if it doesnt, what then? Will it simply chop from side to side? No, it will fall and fall hard it will to levels that will shock you.

    The next stop is 1430 and if it goes much further then the shock and awe will prevail. After that will be one number and that number will be 1190.58 which will be the pivot.

    So I am scared. In this war, I would rather be the private that comes out with his life then the one who is being burried with a medal.

    #10     Jul 1, 2007