Inflection Points?

Via Kurt Joerger of Joerger Financial,

We seem to be approaching an inflection point of some complexity. If U.S. economic and earnings hockey stick forecasts are achieved, markets will soon be left without Fed accommodation. If the hockey sticks are not achieved, and growth continues at stall speeds, perhaps all the markets will be left with will be Fed accommodation.

We had reached an inflection point in mid-2007, but it was not perceived by most. From a market perspective, the tell for this inflection point were decreasing earnings and increasing price volatility over progressively shorter durations. Rallies became smaller and shorter, and corrections harsher; by mid-2007 corrections started to retrace virtually all of market rallies.

If we begin to see similar price action behavior, it may be the tell that we are, once again, reaching an important inflection point.

S&P 500 Price Action, 2007 topping process:

  • July 2006 to February 2007 rally +224 points, 7 months; consolidation of -74 points
  • March 2007 to July 2007 rally +166 points, 5 months; correction of -146 points
  • August 2007 to October 2007 rally +156 points, 3 months; correction of -155 points
  • December 2007 rally +108 points, 1 month; correction of -227 points
  • March 2008 to May 2008 rally +138 points, 2 months; correction of -212 points

 

As a gentle reminder from two weeks ago – here are the hockey-stick expectations

Sliding US GDP got you down? Fear not: just add hockeystick.

Earnings continue to decline on a year over year basis? Fear not: just add a little more hockeystick.

    

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