Long Term Stock Market Cycle: Where Are We Now?

This morning, Market Folly's quote of week focused on wisdom from value investor Joel Greenblatt. A few sentences in particular stuck out where Greenblatt says:

"Over the long term, despite significant drops from time to time, stocks (especially an intelligently selected stock portfolio) will be one of your best investment options. The trick is to GET to the long term. Think in terms of 5 years, 10 years and longer."

Given his commentary, the chart below is a perfect illustration of "the long term." This chart, courtesy of DecisionPoint (via Cynical Advisor) depicts how the stock market has traded in 16-18 year bull/bear cycles ever since 1932.

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Currently, the market appears to be in the bear cycle where it essentially chops sideways via wild oscillations every few years. By the chart's calculations, this means the market will be stuck in its current cycle for another 5-7 years before entering another bull cycle. This of course assumes the current trend of alternating cycles remains in tact. Focusing on the drawn-in trendline, a break below the level of 500 on the S&P would obviously be quite a negative signal jeopardizing the multi-decade trend.

In the end, this chart simply illustrates Greenblatt's notion of "long term." In a day and age when everyone is so focused on short-term performance, hopefully this forces you to take a step back and examine things from a multi-decade perspective. While the current trend is choppy to say the least, the long term trend is most definitely up. The problem for most investors though is the lack of ability to remain on course. Whether it be poor market timing or succumbing to emotion, investors have time and time again found a way to deviate offtrack.

Technical Look at the S&P 500 Given the Recent Sell-Off

Given that the market has seen a large sell-off in recent days, we thought it would be prudent to take a technical look at the S&P 500. Adam over at MarketClub has posted a new video on the S&P 500 where he takes a look at whether or not the market is heading lower. Drawing the fibonacci retracement from the market highs to the market lows, he notes that the 50% retracement level is typically very important and serves as a resistance point. He also points out that they received a signal to exit their longs at S&P 1,114 as the market hovers around 'thin air' in the retracement zone. Click the chart to watch the video:




For now, Adam feels it's best to be out of the market as the sell-off has been sizable and he is anticipating more defensive action. However, he lastly notes that their monthly signals still show that the trend is up while their timing signals show to be out of the market for now. Check out his thoughts on the S&P 500.

S&P 500: Key Levels To Watch (Technical Analysis)

Adam over at MarketClub is back with a fresh look at the S&P 500 to decide whether or not the market is about to collapse or take off higher. You can check out his technical analysis video on the S&P 500 here. He pulls up a chart of the S&P and uses the fibonacci retracement tool to connect levels from 2008 to the lows in March of this year. Upon doing so, he notices that the 50% retracement level, often an important retracement, lands right where the market is currently and is serving as resistance for the S&P 500. Click the chart below to watch the video:



He also points out that there's been a divergence in the MACD for a long time as it has headed progressively lower while the market has headed higher. This divergence has been building over time and can be telling. He then zooms in to recent action and notes that the market has been rangebound lately and has been trading sideways. The 1,110 level has been serving as resistance for the market while 1,083 has been serving as support in the range. So, if it falls below that level, it could mean the market is going lower. And conversely, if the market breaks out above 1,110 then look for prices to head much higher. He says these are important because the market has become very technically-driven. Check out the video for Adam's full technical analysis of the S&P 500.

Key Levels In the S&P 500

MarketClub just posted up a new video examining the S&P 500 and in it they've outlined two key levels in the market. They highlight that while the trend is up, you still have to be cautious and know when to switch from long to short. So, they've identified a level at which to exit longs (S&P 1072) and then they've identified a separate level which would signify a trend break where you would want to then get short (S&P 991). These are obviously important areas to watch because the trend is your friend... until it's not. Hear what they have to say in their S&P 500 video.

Use those levels to help you place your stops or know when to exit your longs as the market continues to melt up higher. It's never a bad thing to have an exit strategy in place.

Technical Analysis: S&P 500, Dow, Nasdaq & Gold

Marketclub just pumped out a bunch of technical analysis videos on the major indices as well as everyone's most watched precious metal. If you want to see how the charts are shaping up, Adam walks through the technical patterns in each video. He takes a step back and gives a broad overview as to what he's seeing in the markets and looks at formations, fibonacci retracements, MACD, and other indicators. Here's the videos:

- Technical analysis on the S&P 500

- Checking out the Nasdaq & Dow charts

- Gold has been on a rampage, check out the latest chart


Great overview in each of the vids. Enjoy and let us know what you're seeing on a technical level too.

How Long Can The Rally Last?

First and foremost, no one can deny that the trend right now is up. The guys over at MarketClub have placed an emphasis on the saying, "don't fight the tape." At the same time though, they wonder how long the market rally can really last. They highlight the 50% fibonacci retracement as potential resistance ahead at Dow 10,339 in their latest market technical analysis video. They don't debate that the trend is up. However, they feel that the market has the potential to begin to roll-over and so they're watching cautiously. The market has been stair-stepping higher and each sell-off is met with more buying. What's important to watch is those levels where the market reversed and headed higher yet again. If the market takes out those mini-dip levels to the downside, they say that could be your signal it is starting to roll over. But still, "don't fight the tape." Wait for the weakness at the levels they outline in the video.



Also, if you're interested in technical analysis on specific equities, they recently put out a video on Research in Motion (RIMM). They think this name could potentially trade all the way down to the $40s, even after their announcement of a share buyback. The current technical pattern is bearish for RIMM in the coming weeks according to the video.

Lastly, they turn to commodities. In a crude oil video, they are taking a look at classic charting patterns that are taking shape. They note to pay attention to the MACD, saying that if it crosses the average it will be bullish. Aditionally, the commodity itself has gone into a flag pattern which has the potential to send oil much higher. So, they say to keep an eye on the chart. See their crude oil analysis here.

Has The S&P 500 Broken Support?

These next few days in the market will be pretty important given that the S&P 500 seems to have violated its primary trendline from the lows in March to the recent top. So, the question to ask is, does the market drop further from here? Or is this simply another tiny pullback like we have been seeing? MarketClub has analyzed the S&P 500 in this video and has identified potential areas the market could drop to if things got nasty. Additionally, they outline the potential for a head and shoulders top to take place where we could see yet another mini-rally before finally selling off.

They've also noted the divergence in the MACD for some time as it has turned negative a while ago and is downtrending while the S&P continued to slowly head higher. Needless to say, they are cautious and are watching these next few days to see how the market reacts to breaking through this primary trendline. Watch their S&P 500 thoughts here. Lastly, don't forget they are offering a free trading course via email for those interesting in learning more about technical analysis. As we always like to say, you can never have too many tools in the investment arsenal.

Taking A Look At The S&P 500

No question, this market rally has been persistent. So today we thought it would be prudent to post up the most recent video from the guys at MarketClub examining the S&P 500 which could give cause to be cautious. Their quick technical analysis shows that from the highs in October 2007 until now, there is a definitive trendline to the downside that the market has rallied right up to. Conveniently, this same level serves as a 50% retracement if you draw out the fibonacci tool from those highs of October 2007 to the lows of March 2009. Check out the technical analysis of the S&P 500 for more.

Fibonacci Retracements S&P 500: Technical Analysis Video

Since we like to look at both sides of the argument, we thought it would be prudent to highlight a potential bullish scenario as identified by technical analysis. This comes after we just earlier today looked at two reasons to be bearish.

The bullish scenario stems from a potential inverse head and shoulders and levels identified by Fibonacci retracements. Here's the video that outlines the potential scenario. (Unfamiliar with Fibonacci? Watch this educational video).

A screenshot we've taken from the video highlights that the retracement tool was drawn from the highs of October last year to the lows of March of this year. By placing it as such, it identifies four potential fibonacci retracements at S&P 500 levels of: 878, 1011, 1119, and 1227. We are currently floating around the 38.2% retracement of 1011 and looks like we may head higher. When the market initially flew past the 23.6% retracement at S&P 878, we noticed that it came back down and tested that level. That level held and the market was propelled higher. The next stop in terms of retracements where we might see resistance is 1119 and after that, 1227. If the potential inverse head and shoulders plays out to fruition, then 1227 on the S&P would be a likely upside target.

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The guys over at MarketClub have done a nice job of walking you through everything so you really only need to watch the first half of the Fibonacci retracement video. While we are not bullish at this moment, we want to be clear that it's always prudent to examine both sides of the argument. (After all, Doug Kass called a top in the market for this year). One of our favorite sayings is that the market can remain irrational longer than you can remain solvent. Hedge fund manager Paul Tudor Jones likes to let the market guide him and that's exactly what we'll do here.