NEW YORK (TheGoldAndOilGuy.com) -- The past five to six weeks have seen equity prices move considerably higher amid growing concerns regarding the European debt crisis, the instability of the Middle East, and ultimately the potential for a major economic slowdown in the United States.U.S. equity indexes have continued to climb the proverbial "Wall of Worry" since the first week of June and have put on an incredible run. This past Friday saw the S&P 500 post the highest weekly close of 2012. The perma-bears have been calling for a top and continue to run scared as light volume and volatility have given the bulls an edge during August. The next key overhead resistance level for the S&P 500 to hurdle is the 1,440 resistance zone lingering slightly overhead. I try to refrain from calling tops or bottoms as I feel its a fool's game that ultimately humbles most market prognosticators. If calling tops and bottoms was easy, investors and traders alike would be able to produce monster gains all the time with uncanny precision. Instead of trying to predict where the S&P 500 Index will find resistance or create an intermediate to longer-term top, I will simply posit some technical and macro-economic data that indicates we are likely closing in on a major top. As stated above, the recent rally we have seen has taken place on relatively light volume and plunging volatility as measured by the Volatility Index, or VIX.
Another underlying asset that I monitor closely is copper futures. Generally speaking, if copper futures are rallying economic conditions tend to be strong. The opposite can be said when copper futures are under selling pressure. Recently, copper futures prices have been trading in a relatively tight trading range, but the longer-term weekly chart shown below demonstrates that should prices start to selloff, a major selloff could transpire.
As shown above, there is a monstrously large head and shoulders pattern (bearish) that goes back to early 2010 that has formed on the weekly chart. Should the neckline of this pattern get taken out on a weekly close the selling pressure that could transpire could be devastating regarding the price of copper. However, a major selloff in copper would also indicate that economic conditions were weakening globally. If copper triggers this bearish pattern, it would likely not be long before other risk assets followed suit. In addition to the possibility that major selling pressure could await copper should that pattern trigger, another macroeconomic data point would argue that economic conditions are already starting to contract. The chart shown below, courtesy of Bloomberg, illustrates the amount of waste hauled by railroad cars and the implicit correlation to U.S. gross domestic product. Recently, Zerohedge.com posited an articlearticle that featured this chart. The article and the accompanying chart demonstrate that as more products are produced, additional waste can be expected. As shown above, the amount of waste being produced and hauled by railcar has fallen off a cliff and should longer-term correlations remain intact a contraction in U.S. GDP is likely not far away. There are a multitude of other topping triggers that I follow that are all screaming that a major intermediate and possibly even a longer-term top is nearby. However, at the moment the price action in the S&P 500 is arguing otherwise. Picking tops and bottoms in advance is extremely difficult and generally foolhardy. However, when multiple triggers are going off regarding a possible type I pay close attention to price action. While I will not go as far as to say where specifically a top in the S&P 500 will form, I believe that a top is forthcoming and could even occur in the next two to three weeks.
Price is never wrong, and eventually I suspect that price will tell us what we wish to know. For now, I am going into the next few weeks with caution regarding the upside in risk assets. However, it is important to point out that I am not looking to get short risk assets either. My research indicates that a major inflection point is coming and it could coincide with the Federal Reserve's Jackson Hole summit. It could coincide with an event that we are unaware of as well. At the moment risk in either direction seems high and caution regardless of directional bias should be exercised. The next few weeks should tell the ultimate tale. This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.