Its easy to concentrate on every market squiggle and lose sight of the larger picture. That’s why every once in a while, it’s important to pull up the long term charts. I’ve looked at these charts recently because the markets have been unable to bounce back from short and intermediate term oversold conditions. That tells me a longer time frame is of greater importance right now. In other words, I think the market is grappling with bigger issues than the minor day to day and week to week fluctuations. It’s deciding on a longer term trend and a bigger % swing than has been typical over the past two years.
With that, lets look at some charts from 1980 onward. Connecting highs-to-lows and lows-to-highs often time reveals important price and time levels.
Right now, the S&P 500 is resting on somewhat important support from the long term chart at 1180. I think if this level breaks, the S&P will head to 1050, which is support from the next up trend line.
The NASDAQ has come down to similar long term support. If the NASDAQ breaks down at this level, I would expect a move to 1500, which is the next up trend line.
Interestingly, the 30 year bond yield is still fairly far away from testing important long term resistance levels. I would imagine if the Fed continues to raise short term rates that long term rates will start coming down as the bonds price in an economic slowdown. However, if the 30 year bond yield breaks above 5.1% and 5.4%, then you can bet that the long term interest rate cycle has turned back up.
It looks to me that the equity markets and the 30 bond are much more concerned with slowing economic growth than with rising inflation. If inflation were a bigger issue, I would expect the long term bond to be already testing the upper end of its down channel. However, its at the bottom of the channel. The equity markets on the other hand are hanging on by their fingernails to long term support from rising channel lines. If these levels break, I would expect more downside for the equity markets and the long term bond yield.