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The $OEXA200R Monthly (the percentage of S&P 100 stocks above their 200 DMA) is a technical indicator available on StockCharts.com used to find the "sweet spot" time period in the market when you have the best chance of making money. See Is This the Best Stock Market Indicator Ever? for a discussion of this technical tool.
On Wednesday, the OEXA200R dropped to the critical 50% level after a precipitous two month slide.
Daily OEXA200R daily
According to this indicator system, when OEXA200R drops to the 50% line or below it is interpreted as the unambiguous signal to exit any remaining long positions immediately in expectation of a serious, imminent market decline. Conversely, it is also be the clear signal to go short to take advantage of that sharp correction.
So, where is this all headed?
In my opinion, the most significant indicator of where we stand today is the fact that the market is above both its 140 year historical trend line and the trend line for the secular bear that began in 2000. These are the marco-forces that will gravitationally pull the market back into equilibrium at some point in the near future. Add to that any number of catalytic news events which could exacerbate such a correction. QE has been a countervailing force to recent market slides but, realistically, Fed Chair Bernanke can only feed the market so many cans of QE Red Bull before it eventually crashes. In light of the factors mentioned above, it should come as no surprise if in 2013 – 2014 we end up experiencing a market event worse than that of 2008 – 2009.
There are a lot of hypotheticals but we can be sure of a few things. QE Eternal and currency debasement are here to stay. Even if it were to pass after a political blood bath, a tax on the “rich” who make $250,000+ / year might raise $80 billion / year in additional revenue, assuming static analysis is correct. That’s just 7.3% of the $1.1 trillion annual deficit, a rounding error. Of course, even that would be offset by the $250 billion annual cost of Obamacare set to begin in 2014 and demographic factors driving the costs of Social Security and Medicare. After the recent election, none but the bravest politician entrenched in the most secure of Gerry-mandered red seats would even suggest touching entitlements. So as sure as the sun will rise tomorrow morning, our national debt and debt limit will continue to increase with no end in sight.
On the bright side, there is a very close correlation between the debt limit and USD price of gold. For the optimist, a giant lemon just means a lot of lemonade.
© John F. Carlucci
John F. Carlucci is a regular contributor to Advisor Perspectives and the author of "Ashes to Riches: How to Profit Spectacularly during the Economic Collapse of 2012 to 2022", available on Amazon.com.