A Potentially Bullish Long Term Development

As I was reading the latest post over @Bclund‘s blog today, I saw a ~20+ year chart of the Dow Jones Industrial Average ($DJIA) and it got me thinking. I saw a potentially bullish long term development taking place. Yes, we all know the market has been in a secular bear phase over the past decade. However, ever since bottoming, for the most part, the market has shown bullish tendencies. Call it a liquidity-driven or value rally, but rallying 100% off the lows (which we did in April 2011) is impressive.

However, the bullish development has to do with something else. The potential bullish long term development is that we are possibly setting higher lows on a longer time frame.

We bottomed in 2009, putting in what I believe was a generational bottom. We rebounded sharply in 2009 and rallied with only small pullbacks until April of 2010, which was met with the flash crash and the following summer of chop. However, with QE2 came a market bottom and a market rally (similar to what we saw in 2009). That rally took us to the current 3 1/2 year high in April of 2011. However, with the debt cielign fiasco and recession worries during the summer of 2011, the market sold off (and in turn broke the 2009 trendline) but it did not break below the 2010 lows, which I found to be bullish. We bottomed in October of 2011 and have rallied since then.

The potential bullish development is that the 2011 bottom may be a second higher low. This will only be confirmed if we break above the 2011 high (which I expect us to do). Once that happens, the “potential” part disappears and it becomes a full-fledged bullish development, which I believe will set us up for a rally to all-time highs sometime in 2013.

$SPY Monthly Chart



















The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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