The SPX was +1.2% last Wednesday after Bernanke’s overt flip-flop surprise on the probable limited taper, which was essentially a choke because of how fast interest rates rose after the Fed floated that probability. It is just another example of the haphazard way in which monetary policy is being administered. The Fed/Administration policy has made the U.S. a banana republic, which can only end in a crash.
The index lost most of that FOMC bond/stock squeeze on Thursday and Friday going -0.9% to finish the week +1.3% to 1709.91, after making a new cycle high of 1729.86 on Thursday.
There is little doubt that the Fed has lost whatever credibility it had, and is just an arm of the current Administration. That will be even more so when the next Obama choice, which appears to be Janet Yellen, gets appointed. The Fed is trapped and the economy continues to drag along the bottom, so QE is here to stay – even if they initiate a partial taper which means nothing.
The current bull market is +159% from the 667 3/6/09 bear market low to the 1730 high last Thursday, in 1658 CD`s, which makes it the third longest bull market starting with the 1928 low.
I have included the SPX monthly chart of this bull market which outlines the negative 5 RSI Divergence from the 1687 to 1730 high, with the 91.30 RSI at the 1687 high, and the negative 123 declining momentum divergence with the SPX.
The 91.30 5 RSI is the highest of this bull cycle and the risk reward is obviously negative on a technical basis. The last two significant bull cycle declines were preceded by highs in the 5 RSI at 78.5 and 85, but a negative price divergence after an extreme O/B number obviously has more technical significance.
There is little or no correlation between fundamentals and the valuation of this market, which is nothing more than a Ponzi scheme run by the Fed. Under normal circumstance you can`t know the duration or extent of a move, and with the Fed involved it is impossible. However, the significant highs and lows of this bull market have all had Pi and/or Fib time symmetry, in addition to Square Root Relationships, confirmed by O/B or O/S technical evidence.
The “game” may be fixed, but you have been able to anticipate and pinpoint high probability reversal zones with a positive mathematical expectation of success.