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SPX: Comparisons of 1994 and 2006

 
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PostPosted: Sat Aug 05, 2006 5:21 pm    Post subject: SPX: Comparisons of 1994 and 2006 Reply with quote

Currently, there's uncertainty if the economy will fall into recession within a year (e.g. given some of the previous money supply tightenings are in the "pipeline," and the flattening of the yield curve). In 1994-95, the Federal Reserve achieved a "soft-landing," and may avert another recession in the current period.

The first chart is an SPX 1993-94 daily chart that shows a top in Feburary '94, a 9.7% fall in two-months, and then a general uptrend. The second chart is an SPX current daily chart that shows a top three-months ago. The vertical line in the first chart is where SPX was three-months after the '94 top.

There are some crude similarites between the two charts, including falling to bottoms quickly, making higher highs and higher lows, and the 50-day MAs falling below the 200-day MAs. The two arrows, in the first chart, indicate a more sustainable rally above the 50-day MA, which began to rise. Consequently, it's uncertain if SPX is currently in a similar uptrend.

The third chart shows intermediate-term technical indicators remain bullish (the CPC 50-day MA, i.e. Put/Call above chart, is particularly bullish, because it peaked at 1.08, which is an all-time high). However, short-term technical indicators are overbought. SPX 1,261 is key support, i.e. breakout point of mid-July high, middle of daily Bollinger Band, and rising 50-day MA. SPX resistance is around 1,290, i.e. June high.

If the FOMC pauses Tuesday, that may ignite a rally, perhaps to around 1,290. However, it may be short-lived, because of concerns about a contracting housing market contributing to higher unemployment, lower consumption, and accelerating inflation (since rents are rising). Also, oil prices remain high. If the Fed tightens, a steep market fall may take place. Consequently, volatility may continue.





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