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.
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.
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