The Times They Are A Changin’

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2017 is likely to be an interesting year, and the tape has already shaken off the December cobwebs and is moving again. On the bigger picture the chart below is how I’m seeing SPX on the monthly chart here, and the key message is that the bull market from the 2009 low here is most likely topping out or has already topped, though that doesn’t mean that SPX will necessarily drop much in 2017. This has been an eight year bull market and if we see the retracement that I’m looking at on the chart below, then we may not see that bear market low until 2020/1. If we see that 50% retracement then that would be a beautiful fibonacci move, and should then set up a very nice long into the next bull market.

Might that level break hard, and equities make new millenium lows while central banks collapse and the world burns? Well possibly, but I’ll need some evidence that the apocalypse was actually happening before I start including it in my charts. Until then my working assumption will be that anyone waiting on a mountain-top for the end of days is only improving their chances of catching pneumonia. Bull and bear markets, and the retracement that we are looking for here, are just business as usual. SPX monthly chart:

170101 SPX Monthly

That said, the world has a very interesting adjustment to make over the next few years, and that is the adjustment to a long bear market in bonds. The bull market in bonds since the early 1980s has likely ended now, and the bear market that is starting here is likely to last into the 2030s, with interest rates rising to levels that haven’t been seen in a long long time. This will take years to play out of course, but it’s going to be very interesting to see how the highly indebted governments that we have now can cope with a world where the cost of their credit has increased sharply.

Too early to say how this all works out of course, but it’s safe to say that, as this bear market in bonds plays out, which will be a bull market in bond yields of course, debt will become steadily less attractive and the long term trend of increasing debt in the economy is likely to at least stall, and likely reverse. Some over-indebted firms and governments will undoubtedly be forced into default, with Japan at the head of the list of governments with debt problems that look far too big to rescue. Interesting times are coming. the TNX chart below is for 10 year treasury yields, which move inversely to bonds of course. TNX monthly chart:

170702 TNX Monthly

Less important but still significant is the major high that we are expecting to see on USD in the next few days. Moves on USD don’t take as long as moves on bonds to play out but this move up has run since the second low of the major double bottom in 2011, and USD has run up while commodities have run down. Both are likely in the reversal process and are now likely to run for years in the other direction. USD monthly chart:

170102 USD Monthly

In the short term the only really clear short term pattern I have on the equity indices here is on TF, which is the index where I often look to when direction is unclear. TF is in a very clear descending triangle. Bulkowski has these as 64% bearish, though in my experience they are more direction neutral. Either way triangle support is at 1352.50, as well as the monthly pivot, and a sustained break below would look very bearish. If that support holds, with TF at 1356 at the time of writing, that would look very bullish, subject to a further break through triangle resistance that would look for a retest of the all time high. TF Mar 60min chart:

170103 Lunch TF Mar 60min

If you missed the webinars that Stan and I did at in December on our longer range forecasts for equities, bonds, forex and commodities the recordings are posted here. Our forecasts are laid out in detail there. Happy New Year!