HOW LONG WILL IT LAST?

A couple of weeks ago, in the article A PROPHECY: 2012-2015 we proposed that in the SP500, based on a repeating cycle, the current bottom should come approximately 20 days after the top. Indeed, price has hit the proposed bottom and accelerated into the direction of 1530 with a gap. It definitely looks strong for now!

But how long will it last?

Our timecount coincides with the apex of the triangle and right now this gives us an approximate date around the 10^th of June. Let’s see how far we get!
(This is just one of various dates which all coincide over the summer for a major high. Looking back at the tops in 2000 and 2007 it looks likely that we will see a repeated attempt to break overhead resistance before the real turn occurs.)

But in order to get a more clear picture of the internals of this rally, let us consider the significant changes that we can already see ahead of us for the foreseeable future. First of all, we are in an election year and every economic indicator is being fine-tuned to create short-term “confidence” in the general public. However, elections bring uncertainty with them and we cannot know for certain how the market will react to any changes. Analysts are already following closely the elections in France and we can expect them to do the same regarding the US elections on the 6^th of November, 2012. As always, markets are forward-looking, so any expectations about the outcome will be priced in far earlier.

Additionally, Operation Twist is coming to an end this summer and so far we have no clear indications if there will be QE3;  Though, I am certain, policy-makers are itching to run the printing presses again, it can be felt that anti-government sentiment is on the rise and their so called “perception-management”-operation becomes an even more impossible task to accomplish. On the other hand, indications of further easing have the potential to permanently erode the confidence in the dollar and further complicate the global world view. Decisions, decisions, decisions!

With so much uncertainty around the landscape, the market is vulnerable to cascades, as liquidity has dried up and the retail investor seems to have permanently left the building. Apparantly, the "weak hands" will not be fooled this time!

Not only the public seems to have lost confidence in the market, insiders seem to have just as little faith in the economic outlook. This, combined with self-reinforcing movements through HFT-trading, gives us a hint that there will be no one to stem the tide, if it just happen to turn against us. 

Unfortunately, the cycles indeed indicate that the tide will indeed most likely turn against us very soon. Until then, enjoy the calm before the storm.

Charts: ZeroHedge, Barclays Capital, Bloomberg