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SPX Growth Path

 
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PostPosted: Sat Sep 23, 2006 4:22 pm    Post subject: SPX Growth Path Reply with quote

This week, there are two Market Forecast sections (also "Bold Trades, Big Gains, and Controlling Risk"). Below is an SPX and CRB (commodities index) comparision chart, i.e. SPX black line and right scale and CRB green line and left scale. The gray line is the ordinary least squares (or best fitting line) of the performance of SPX from 1982, when the SPX structural bull market began, to 1994, when the SPX bubble began.

It's possible a "structural break" took place after 1994, which steepened the slope of the gray line (e.g. the housing boom or increasingly larger current account deficits). However, a steeper slope would largely be temporary. Nonetheless, the structural break is represented by the blue line. Currently, the gray and blue lines indicate SPX is long-term overbought. CRB began a structural bull market roughly when SPX began a structural bear market.

CRB began a major correction when it fell below its multi-year support line recently. If SPX were to have a similar correction from around 1,350, it would fall to 1,140 quickly. Given the current cyclical bull stock market is the second longest in history, a major correction or the beginning of a cyclical bear stock market may take place in the next intermediate-term downtrend cycle, before the end of 2006, or after one more intermediate-term uptrend cycle, which will turn into a downtrend cycle before mid-2007. A correction or bear market is dependent on whether the Fed achieves a "soft-landing" or a recession.

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