SPX 500 - Where are we?

Here's a very interesting chart to watch as we head into 2012. The key elements present in the chart are a combination of indicators that give an advanced warning of a turn to come, an indicator of the fear level in the markets and finally a slower moving indicator that confirms the change of direction. The pink boxes at the top contain, on the left a fractal that formed at the top in late 2008 and on the right there appears to be a similar fractal forming.  Not hard to see what happened in 2008 and a repeat is possible again in 2012 if the fractal pans out.


Before we look at the chart further, a few definitions may be in order:

1. A fractal has been defined as "a rough or fragmented geometric shape that can be split into parts, each of which is a reduced-size copy of the whole," a property called self-similarity.
2. The TED spread is now calculated as the difference between the three-month LIBOR and the three-month T-bill interest rate. A rising TED spread often presages a downturn in the U.S. stock market, as it indicates that liquidity is being withdrawn.
3. The Libor rate is the average interest rate that leading banks in London charge when lending to other banks. It is an acronym for London Interbank Offered Rate(LIBOR), Banks borrow money for one day, one month, two months, six months, one year, etc., and they pay interest to their lenders based on certain rates

SP 500 Weekly Chart

So technically going forward into 2012 we are on a sell signal:

1. The early indicators have given us a sell signal in the top chart (indicator 1 and 2)
2. The TED Spread is rising and continues to rise en-light of the current rally.
3. The Fractals are hinting at a possible major top similar to 2008.
4. The lower indicator is below the zero line and has confirmed the early sell signal.

As for the economy,we should try to wrap our minds around these seven mathematical facts:

1. Every day, the U.S. government takes in $6 billion and spends $10 billion.  This means that every day the federal government spends $4 billion more dollars than it has.
2. The real unemployment rate is a jaw-dropping 11 percent.
3. Every fifth man you pass on your way to work is now out of work.
4. College graduates are now 34% less likely to find a job in this economy  than they were three years ago.
5. Every seventh person you pass on the sidewalk now relies on food stamps.
6. The ravages of this economy now mean that more Americans live under the federal poverty line than at any time in U.S. history since records have been kept.
7. Every fifth child in America now lives in poverty.

Lots of things going the wrong way at the moment ... caution is warranted.