Some have asked me to comment on the price of gas and what affect it has had in the past on the market. The chart below shows the historical price of gas versus the S&P 500 which are both adjusted for inflation going back to the early 1900's. As you can see all three major Bull Markets (points A to B) since the early 1900's have occurred with falling gas prices (points C to D). In fact based on inflation adjusted data gas prices in the 1990's were the lowest on record.
Meanwhile rising gas prices (points E to F) have usually had an adverse affect on the market (points G to H). Keep in mind despite the rally from the March 2009 low we have been in a Secular Bear Market since 2000. Also notice the big drop in gas prices in 2009 (points F to I) coincided with the oversold rally however since then there has been another significant rise in the price of gas. Thus so far the recent rise in gas prices hasn't affected the market as of yet. However you have to wonder if they continue to rise if another decent sell off will eventually follow.
Finally another thing I would like to talk about is the Inflation Adjusted chart of the S&P 500 using a log scale. Notice there is a clearly defined longer term upward channel (black lines) going back to the late 1920's. Next also notice since the 2000 high there is a definite downward channel (red lines) as it looks like the S&P 500 is attempting to rally back to the top of the downward channel. The question is will the top of this downward channel provide significant resistance and will another move lower follow as an "WXY" Double Zig Zag pattern evolves? In this scenario the first Zig Zag "W" ended with the March 2009 low while the oversold rally would be an "X" Wave. This would then be followed by another Zig Zag for "Y" to complete the pattern near the bottom of the longer term upward channel.
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