As mentioned previously, the stock market drops before the top of the business cycle is reached. This can be observed back in 2000 when the SPX topped out in March whereas though the DJT had topped out earlier around May 1999 (point 1 on the graphs).
The peak of the business cycle came in March 2001 (point 2 on the graphs) and it was announced 8 months later in November 2001 (point 3 on the graphs) - which was also the trough of the business cycle; the trough of November 2001 was only announced in July 2003 (point 4 on graphs), months after the stock market had already begun to rally.
Notice on the graph that the DJT broke major support lines earlier then the SPX. Having said that and that I believe we are not in a recession yet I see two possible outcomes if we retest the lows of August:
1) DJT is close to the lows of August and if it breaks below next resistance would be the lows of last summer around the 4200 level. If it breaks below that level then we may start talking that we have reached the top of the cycle and we are in a recession.
2) We may rally from here as the DJT has already almost reached the lows of August, thus, the SPX will never retest the 1370.
I would favour a retest of the 4200 level in the DJT and 1370 on the SPX and at that point we will have a clearer picture if we are heading into a recession; At the end, if SPX retests the 1370 area and rallies then the rally would have more strength rather than rallying now.
Here is a link to the date announcements for the business cycles: http://www.nber.org/...cyclesmain.html
Another link that may be of interest (as it can hint if we are heading to a recession) is Chicago FED National Activity Index:
http://www.chicagofe..._august2007.pdf
Nevertheless, its all about numbers and numbers can be easily manipulated
Edited by nicolasillo, 10 September 2007 - 06:24 PM.
