I find technicals so inherently valuable because they offer such clear parameters for identifying where something has changed (or not). They offer great lines in the sand in terms of facilitating improved exeuction – long here / short here.
So, it is because of this inherent value that I find the monthly SPX chart below one of the more compelling I’ve ever looked at.
Simply stated – line (1) has turned out to be the most important line in the sand for the SPX since the 80s – a break above the line launched the 1995-2000 tech bull market and a successful test of the line as support in 2002 launched the 2003-2007 housing bull market.
The latter two periods are the only periods in history where the SPX has been above the line.
Conversely, failures at the line or crosses below the line have produced the market’s most punishing sell-offs over the same period – we failed at the line in 1987, crossed below it in fall 2008 and failed at it in summer 2011.
And just recently, in April of this year, we rallied up to the line to test it once more. Thus far, it appears as if we’ve failed again.
Question is – will this ostensible failure produce a similar result this time around as it has in the past?