(Published 10/07, Just weeks before the market started it's drop into the largest crash in U.S. history)

I can't tell you when it's going to happen.  But I can look technically at the WARNING SIGNS that it's going to finish and turn. We know that all things that go up, eventually come back down to some degree and the market will surely do the same.  When? That's the golden question.  Let's look at the history of the S&P 500 to get clues.  We'll be using the SPX monthly candlestick charts for education.

S&P 500 From Black Monday - 2000 - 13 Year Bull Run, Almost Straight Up.   This market took a hold of the Black Monday drop and bounced for a 13 year rocket ride up to the year 2000 (read my LEARN FROM BLACK MONDAY article) amazingly and powerfully.  Then it signaled CLEARLY that it was over and began a 3 year movement back down.  Let's look at the warning signs in 2000 that showed when the move was over.

Notice the warning signs that this bull run was over in 2000.  First, the market failed to make a new high (red circle), then the market broke under normal support (yellow circle).  This signified that it was time to get out of all long positions and prepare for correct time to get short (sell) this market for a downward run.  How long did this take from the break of the all time high?  12 months.  If you knew how to read the charts, would you have time to exit? Yes - absolutely.

 At the end of the downward run in 2002/2003, the market suddenly surged upward and broke through normal rhythmic resistance lines (yellow circle).  When this happened, it signaled a bull run upwards and my prescription would be to buy every pull back until new highs are not made any longer.  As a result, we've had new highs made for the last 4 years.  

When will this end?  I don't know. The last bull market lasted 13 years.  This next one could end in 2007, or it could end in 2020.  However, we can know the signs and seasons of the end of this move.

(Mat 25:13 NIV) "Therefore keep watch, because you do not know the day or the hour.

What will the end of this bull run look like?  It may very well look like the end of the 2000 run.  Here's what I'm looking for personally.  Notice the educational scenario picture that I've drawn:

1.  The market makes an all time new high, then retraces downward nicely.

2.  The market makes another run upward to attempt to break a new high, but fails that attempt and is turned down sharply.

3.  The market fails it's support line as it did at 12/2001.  These 3 warning signs will indicate that the market is demanding a much larger pull back and the buyers want a deeper discounted price.

I want you to remember that I'm not forecasting WHEN this is going to happen.  The last picture drawn has only been done so to give you an idea of what the break down of support can look like.  I'm not saying that this last break of the high is the end of the market, and the picture was drawn only for educational purposes - and is not real price movement.  Again, it's possible that the market may continue to break new highs for the next 20 years - who knows. 

I do know that as long as we continue to break new highs and we keep getting normal upward market rhythm, we're more than likely a long ways away from a downtrend.  How long did it take to get the bearish signal from the 2000 end?  12 months.  How long could a move take here and now?  12 - 15 months - very easily.  In other words, you will more than likely have plenty of time to know when to get out.

Normal market rhythm does not include catastrophe or tragedy, war or uncommon world or governmental events that shake the markets.  Any event of this nature could negate a normal market rhythm move.

I hope this helps you to know where we currently stand in market movement.  While many feel that we're at the top and ready to roll over, the market has not yet given us ANY ANY ANY indication that it's finished going up on a technical basis.

(Note: Read The Story - "Fire A Shot Over Their Bow!" where the market top was called in 2007 - HERE)

Sincerely,
Dr. Daniel Daves

10/15/07