Musing on the "Everybody knows"
Technical Trend-Following Signals Today and the Coming Recession
by Bob Bronson, Bronson Capital Markets Research. August 27, 2005
The sell signals trend followers are getting today typically occur after about one-third of the move is already underway, which is consistent with the downside implications of the advancing minus declining volume on an all-common-stocks index like the S&P 500 -- see the chart below.
So it's possible a right shoulder of a Head & Shoulders pattern could start forming +/- 4% of SPX 1100 lasting either 2-4 months if the low defining the neckline is closer to 1150, and 5-7 months if that low is closer to 1050.
But if instead of these extended topping patterns, SPX 1050 can be penetrated decisively in the autumn, then the decline will likely accelerate in a cascade or waterfall pattern with the 2002 lows being reached in the winter.
If March 7th is considered the stock market high (see DJIA 30) then the six-month lead to the onset of the recession is only two weeks away. But if the August 3rd high is so considered, the six-month onset is early February.
The midpoint of the two is the end of November, which is close to the about yearend target that we've been expecting for some time now. Here are the coincident economic indicators that will commensurately reflect the coming business cycle contraction.
Recall that six leading economic indicators have suggested this timing:
© 2005 Bob Bronson
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