The 2009-2014 Cyclical Bull Market Is Running on Fumes at Resistance in Real and Nominal Terms (4/11/2014)

Via Dvolatility Research

Technical Update on the U.S Stock Market in Real and Nominal Terms

S&P 500: $SPX is way above its 2000 and 2007 highs, but its current cyclical uptrend looks overextended. Volume is starting to increase on down moves as well, so traders and investors are getting jittery at these levels. That uptrend line must stay intact for the bulls to survive, in my opinion.

Source:  StockCharts.com

FYI: $SPX pierced through its 50 day moving average yesterday.

Source:  StockCharts.com

Dow Jones Industrial Average: I like the chart of $INDU much better than $SPX. During the so called secular bear market since 2000, $INDU made higher highs, lower lows, and formed a perfect long-term reverse symmetrical triangle (megaphone). If there's a correction here, which looks likely, its 5 year uptrend line could go to war with the shorts and possibly get taken out, which could be the catalyst that fuels the next cyclical bear market. To me, it looks like the Dow Jones Industrial Average could make a new low before the secular bear market ends. United-ICAP has a similar chart for the S&P (1, 2) based on its lower lows.

Source:  StockCharts.com

NYSE Primary Exchange Index: $NYSE is testing its 2007 high right now. The 2003-2007 and 2009-2014(?) cyclical bull markets look very similar.

Source:  StockCharts.com

Dow Jones Transportation Average: $TRAN is trading in a long-term ascending channel. I don't see a secular bear market anywhere on this chart! As you can see in the thumbnail on the right, $TRAN is indecisive at these levels. I think it will fall back into the channel soon and, if recent history is a guide, possibly trade all the way down to around 4000 in the next few years. Another great recession, a spike in inflation and interest rates, or tightening by the Fed would reprice stocks and other assets downward.

Source:  StockCharts.com

Russell 2000: $RUT looks exactly like $TRAN. I think it will pull back into that channel during a near-term correction and possibly fall all the way down to 600-700 to retest support in that 20 year channel.

Source:  StockCharts.com

S&P 500 Adjusted for Inflation: $SPX/$$CPI, or the S&P 500 in real terms, looks overbought at these levels based on the relative strength index (RSI). The real bull market may have already peaked as well. This chart calculates the S&P priced in February's CPI reading (chart date says Feb 3, 2014).

Source:  StockCharts.com

Dow Jones Industrial Average Adjusted for Inflation: $INDU/$$CPI is around its two previous highs. The Dow Jones Industrial Average actually pierced through both highs recently, pulled back, and then pierced through its 2009-2014 uptrend line. Check to see if a breakdown gets confirmed in the March and April chart. Hopefully the next bear market in real terms will bottom out around 40 to create a reverse head and shoulders bottom. Unfortunately, there's also a possibility that the Dow will make a new low if the Fed/U.S. government can't prevent another wave of deflation or if the Fed ends up destroying the asset price bubble it created.

Source:  StockCharts.com

Dow Jones Transportation Average Adjusted for Inflation: $TRAN/$$CPI looks like its nominal counterpart, but the trend lines don't line up as well on the chart. The Russell 2000's inflation-adjusted chart looks much better. Watch the 2009-2014 uptrend line.

Source:  StockCharts.com

Russell 2000 Small Cap Index Adjusted for Inflation: $RUT/$$CPI recently bounced off of channel resistance and pierced through its 2011 uptrend line. Like the other indexes in ascending channels, I think $RUT in real terms will eventually test its 2009-2014 uptrend line, break through it, and fall all the way down to 2.75-3.0 by the time this secular cycle ends. $RUT/$$CPI's 200 day moving average is currently at 3.09, so it isn't really that crazy of a forecast if you think about it. In 2009, real $RUT fell way below its 200 day moving average before it bottomed.

Source:  StockCharts.com

NYSE Adjusted for Inflation: Lastly, we have $NYSE/$$CPI. NYSE in real terms is still below its 2007 high and is currently around where it peaked in 1999 and 2000. NYSE in real terms also looks overbought based on its RSI, and it looks like there's a head and shoulders top or diamond top forming as well.

Source:  StockCharts.com

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