Perspective

S&P 500 Cash from 1960

At the end of each month – and espe­cially at the end of each quar­ter, it is use­ful to look at higher time frames to gain a broad, over­all per­spec­tive.  Doing so can help us see above the din and clamor.

For a lit­tle per­spec­tive, the first chart is a monthly log chart of the S&P 500 cash index that goes back to Jan­u­ary 1, 1960.  It ends March 31, 2011.  It shows pretty clearly that we have been in an extended, decade-long trad­ing range since the 1552.87 high of March 2000 was put in. 

Since that time we have seen the end of the dot-com bub­ble, the ter­ror­ist attacks on the US, two pro­tracted wars, and the his­toric finan­cial cri­sis.  It is inter­est­ing to see that the mar­ket has traded in a 900-point range dur­ing these events.  Keep­ing a higher time frame per­spec­tive in mind can be help­ful when future events unfold.

Sup­ply Area

Stick­ing with the monthly cash chart, we can see that the mar­ket closed March 2011 on a pos­i­tive note for the month.  Although we had a reac­tion from the Feb­ru­ary highs, that reac­tion was not sus­tained.  Traders appar­ently viewed the reac­tion as a buy­ing oppor­tu­nity and bought.  We can see that vol­ume (this is the NYSE vol­ume) increased on the monthly rally.

The mar­ket appears to me to be nego­ti­at­ing the early sup­ply area seen back in 2008.  I’ve high­lighted the months of Jan­u­ary, June and Sep­tem­ber 2008 on the chart.  You can see that these were all down months on increas­ing down­side vol­ume – sup­ply.  Assum­ing that the mar­ket can suc­cess­fully achieve the 1440 high of May 2008, it will still have to con­tend with the heavy sup­ply that ignited the 2008-09 bear mar­ket seen in July and August 2001.  

That’s quite a lot for the mar­ket to han­dle, and we shouldn’t be sur­prised to see a good sell-off or two.  But as Wyck­off said long ago, it’s the market’s con­tin­u­ous response that gives us an “almost unerr­ing guide to the tech­ni­cal posi­tion of the mar­ket.”  On the monthly time frame, that response remains bull­ish.  As we go for­ward from here, keep the monthly and weekly time frames in view as a part of your analy­sis.  They will help keep you on the right path.