by Kevin Klombies, Senior Analyst TraderPlanet.com
Friday, September 5, 2008
Chart Presentation: 1982 Comparison
Stock marketsare leading indicators while inflationand employment data lag. Centralbankerswho set monetary policy- which works with a lag- off of lagging indicators should be taken out behind the wood shed for a little educatin’. We rarely have kind things to write about central bankers in general but… thank goodness that Ben Bernanke ‘gets it’.
Below we show the S&P 500 Index (SPX) and the U.S. 30-year T-Bond futures from 1981 through 1982.
Similar to the current time period the SPX was grinding lower below the 200-day e.m.a. line from August of 1981 into August of 1982. After breaking support and spiking to a new low into August the SPX pivoted upwards to explode into a new bull market.
We were in the markets 26 years ago and we remember how important the 108’ish level was for the SPX and how negative things were when it was broken. For the equitymarkets to shift from overwhelmingly bearish to rampantly bullish in only a few days was really quite impressive.
From an intermarket perspective the equity market’s upward pivot came from strength in the bond market. Short-terminterest rateshave finally begun to decline and in August- after more than year of making lower highs and higher lows- the 30-year T-Bond futures punched upwards with the SPX following.
At bottom right we show the SPX and the TBond futures from 2007 into 2008.
The argument is that similar to 1982 the SPX is trending lower with each rally dying at the 200-day e.m.a. line. Meanwhile the TBond futures remain below the highs set earlier this year.
The markets could follow any one of a number of paths. The one that we are attempting to show today involves weakness in the SPX until such time as the TBonds break nicely through the 121- 122 level. Given that the TBonds closed at 119 30/32 yesterday this could happen as early as next week. The problem is that we will only know whetherbond pricestrength is sufficient to kick the equity market’s trend truly positive once the SPX breaks above its 200-day e.m.a. line (around 1350) and then keeps on going.
