melt up or melt down?

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Market Faces Massive Resistance

Erik Swarts has one of the best financial blogs out there on MarketAnthropology.com. One of his favorite topics that I’ve been keeping abreast of lately is the idea of a Meridian Market indicator.

Check out a detailed video on the topic here — though personally, I have to mute “The Maker” even if the concept is fascinating. (Sorry Willy.)

If you can’t sit through a four-minute video, here’s the gist: The historical uptrend of the S&P 500 that spans three decades hasn’t been steady, but rather punctuated with periods of lows and highs. However, there’s a pretty clear middle line — a meridian — and at key moments when the S&P index touches this line, it can portend a breakout or breakdown. This includes both our recent “irrational exuberance” and the subsequent 2008 crash.

And in the last few weeks we have seen two unsuccessful challenges to the meridian, by Erik’s calculations. A failure to break through could portend another crash.

Swarts writes: “While it should never be a primary focus or outright trade thesis, keeping an eye on a potential set-up — outside of normal distribution, makes sense at times. I have always found in my work that the greater the preparation, the greater the contrast — which creates more depth to work from.”

Check out Erik’s blog Market Anthropology for more great market commentary, and follow him on Twitter @MktAnthropology for more great market commentary. And keep an eye on the meridian..

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Jeff Reeves is the editor of InvestorPlace.com and the author of “The Frugal Investor’s Guide to Finding Great Stocks.” Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.

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