S&P 500: Aug 12 1982 defines all rallies including Friday's high
Updated
After all the hundreds of trend lines and channel that I have drawn over the last year, I have finally found the most important channel and trend lines. Believe it or not they all originate from August 12, 1982 and Friday's high hit a key trend line. What is so important about that date. Here is some info from the Wall Street Journal.
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wsj.com/articles/SB10001424052970204251404574344230339019304
It was on Aug. 12, 1982, that the Dow Jones Industrial Average dropped to its 1980-82 recession low of 776.92—almost precisely where the Index had closed in January 1964. Starting as a trickle, the decline in inflation and long-term interest rates picked up speed that summer, and investors in common stocks began to have confidence that they were being liberated from the shackles of double-digit inflation and interest rates, an innovation-sapping regulatory regime, and a tax code that was antithetical to capital formation.
During that lazy summer, institutional and individual investors came to the conclusion that the back of inflation had been broken. Not insignificantly, they also believed that they had a friend in the White House.
When Henry Kaufman of Salomon Brothers said that Treasury yields had reached their highs in a note to clients on Aug. 17, 1982, stock prices exploded. This provided free-market optimists with desperately needed evidence that their principles would provide a path forward. The simple—yet difficult to achieve—strategy of getting the government out of the way and turning the economy over to free enterprise set the stage for a period of tremendous economic growth and wealth creation.
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Now one point is not enough to define a line. We need a second point. Now I don't know exactly where the slope of this line originated, but I can find a clear pattern that exposes the originating line from 1982. It first is visible in May 1986, again in Aug 1989, July 1996, and most importantly during the correction after the dot com bubble July 2002 - March 2003. Defining this as the "Master Trend Line" you can determine the peak of every rally since then.
How you ask? Well it is quite simple. You can create a parallel channel with this line, then you can pull up/down the other side of the channel to align the "dotted line middle" with key tops and bottoms of the major rallies. The top of the channel will then give you a very accurate guess at where the next rally will make a peak/top. It also works for corrections. The crash bottom in March 2009 is just an inverted version.
What I have done in this chart is starting from this "Master Trend Line" created several channels (using different colors) that align the dotted middle line to key points (color coded crosshair icons). The line up perfectly. In the most basic case you just keep moving the upper channel up in price to hit key lows and highs. That is it, nothing more complex than that.
Note the March 2020 low lines up very well with the middle line that established the July 2019 peak.
Note that on Friday the S&P touched one of these lines. The channel middle is Feb 9, 2018. The low after the large correction from the super strong 2017 rally.
The next most obvious level is the clear set of price patterns around the 2800 level. Setting the middle there moves the channel (orange) up to around 4100-4200.
The next peak to align could be Jan 2018 or I think more likely the Sept 2018 peak as it clearly define a pattern through 2019-2020 (red). That would be around 4500-4600.
We could align to the pink line that defined the July 2019 peak (dark red). That would be around 4700-4800.
That is not all. I have also laid out the Elliott Waves starting at Aug 12, 1982 and used the dot com as Wave 1. The trick here is trying to figure out if March 2020 was the end of Wave 4, which looks like it was to me. Now the question is how much power will Wave 5. Note that since the March low the S&P has already eclipsed the price change of wave 1 ($1448). From a percentage size they are not close but I don't think that matters with waves, just price.
One technique I use to estimate Wave 5 if we know wave 3 is this. Assume standard wave 1, 3, 5 with fib levels of 1.0, 1.618, 2.0. In this case we have an guess of wave 3 at an actual fib level of 2.236. I calculate a thing I call the Bull Ratio as 2.236/1.618 = 1.382. Now multiply the nominal 2.0 fib by this ratio. 2.0*1.382 = 2.764. The closest fib to the level is 2.786 @ $4143. That fib level intersects the orange trend line around May.
One last thing. Here are my rising wedge pattern and trend lines.
Well, that is what I have put together on my Saturday afternoon. Hope it is helpful.
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wsj.com/articles/SB10001424052970204251404574344230339019304
It was on Aug. 12, 1982, that the Dow Jones Industrial Average dropped to its 1980-82 recession low of 776.92—almost precisely where the Index had closed in January 1964. Starting as a trickle, the decline in inflation and long-term interest rates picked up speed that summer, and investors in common stocks began to have confidence that they were being liberated from the shackles of double-digit inflation and interest rates, an innovation-sapping regulatory regime, and a tax code that was antithetical to capital formation.
During that lazy summer, institutional and individual investors came to the conclusion that the back of inflation had been broken. Not insignificantly, they also believed that they had a friend in the White House.
When Henry Kaufman of Salomon Brothers said that Treasury yields had reached their highs in a note to clients on Aug. 17, 1982, stock prices exploded. This provided free-market optimists with desperately needed evidence that their principles would provide a path forward. The simple—yet difficult to achieve—strategy of getting the government out of the way and turning the economy over to free enterprise set the stage for a period of tremendous economic growth and wealth creation.
---------------------------------------------------------------------------------------------------------------
Now one point is not enough to define a line. We need a second point. Now I don't know exactly where the slope of this line originated, but I can find a clear pattern that exposes the originating line from 1982. It first is visible in May 1986, again in Aug 1989, July 1996, and most importantly during the correction after the dot com bubble July 2002 - March 2003. Defining this as the "Master Trend Line" you can determine the peak of every rally since then.
How you ask? Well it is quite simple. You can create a parallel channel with this line, then you can pull up/down the other side of the channel to align the "dotted line middle" with key tops and bottoms of the major rallies. The top of the channel will then give you a very accurate guess at where the next rally will make a peak/top. It also works for corrections. The crash bottom in March 2009 is just an inverted version.
What I have done in this chart is starting from this "Master Trend Line" created several channels (using different colors) that align the dotted middle line to key points (color coded crosshair icons). The line up perfectly. In the most basic case you just keep moving the upper channel up in price to hit key lows and highs. That is it, nothing more complex than that.
Note the March 2020 low lines up very well with the middle line that established the July 2019 peak.
Note that on Friday the S&P touched one of these lines. The channel middle is Feb 9, 2018. The low after the large correction from the super strong 2017 rally.
The next most obvious level is the clear set of price patterns around the 2800 level. Setting the middle there moves the channel (orange) up to around 4100-4200.
The next peak to align could be Jan 2018 or I think more likely the Sept 2018 peak as it clearly define a pattern through 2019-2020 (red). That would be around 4500-4600.
We could align to the pink line that defined the July 2019 peak (dark red). That would be around 4700-4800.
That is not all. I have also laid out the Elliott Waves starting at Aug 12, 1982 and used the dot com as Wave 1. The trick here is trying to figure out if March 2020 was the end of Wave 4, which looks like it was to me. Now the question is how much power will Wave 5. Note that since the March low the S&P has already eclipsed the price change of wave 1 ($1448). From a percentage size they are not close but I don't think that matters with waves, just price.
One technique I use to estimate Wave 5 if we know wave 3 is this. Assume standard wave 1, 3, 5 with fib levels of 1.0, 1.618, 2.0. In this case we have an guess of wave 3 at an actual fib level of 2.236. I calculate a thing I call the Bull Ratio as 2.236/1.618 = 1.382. Now multiply the nominal 2.0 fib by this ratio. 2.0*1.382 = 2.764. The closest fib to the level is 2.786 @ $4143. That fib level intersects the orange trend line around May.
One last thing. Here are my rising wedge pattern and trend lines.
Well, that is what I have put together on my Saturday afternoon. Hope it is helpful.
Note
Do you want to have you mind blown? Take this with a grain of salt as it could just be a lucky alignment due to a TradingView plotting rounding error, as plotting linearly over really long time frames is not very accurate.Dark blue channel since 2017. Note how the middle aligns to those lows and red candle on Jan 14, 2019.
Now look at today's price relative to the top of the dark blue channel.
This is the mind blowing part. Look how this channel middle line aligns with the top and subsequent pop of 1929 bubble.
Coincidence? Maybe. Maybe Not.
Note
And the icing on the cake.Note
Friday's top and this Monday at 10:48amThe middle of the blue channel
Note
Tuesday Jan 12 10:07amNote
Wednesday 9:11am. Change the pink to blue and added a larger wedge .
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