December 17, 2012 - target 1522

The market seems to have tipped its hand since I last wrote. It has strengthened up after reaching intermediate term oversold levels, as shown in my previous post.

Here is a monthly chart of the SPX.

The bull market has a tendency to correct at long term resistance levels. The next one to the upside is 1522.

A move to this level would also represent a break out of a rising wedge - not uncommon for this chart pattern.


The economic picture has  some points of weakness, but consumption, as a consequence of a continuing recovery in employment, is doing ok.

But this is a symptom of an ending recovery. Businesses have expanded their profits first, then they added equipment & software and then they started adding more workers, which led to higher consumption. Now, they are cutting back on investment and they will soon slow down on hiring. Here is a chart showing the correlation between capital expenditures and employment. Capex leads employment.

So, during the first half of 2013, employment reports will most probably get worse and worse. The market will ignore this for a while, since this means the Fed will stay easy, but the Wile E. Coyote moment will come, just in time for the upside break out of the wedge to fail, as it many times does.