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Boom/Bust Cycle: has the bull market for stocks ended? While clearly there is no single 'best' way to make money in the financial markets, history shows that most investors swim or drown financially depending on the current and direction of stock market trends. A quick glance at portfolio profit/loss statements should yield an accurate assessment of how well an investor is performing relative to stock market trends today, but tomorrow's profits or losses are dictated by future trend currents, which often lie hidden beyond unseen bends in the investment river. So are we facing smooth swift warm waters of a continuation of the stock market boom, or are we destined to crash among the icy rocks of a Wall Street bust? Below are two charts that suggest an investment in life preservers may offer the more prudent course of action at this time. The first chart shows the boom/bust cycle at work in the trading action of Healthsouth Corporation (HLSH,) with the second chart showing the equally volatile ups and downs of the S&P500 (SPX) index over the past five years. Healthsouth (HLSH) boom peak was reached in 1998 near $30, which, for comparison-sake, lines up with the S&P500 2000 peak near 1530; with the S&P500 bust 2002 low near 800, comparable to HLSH's 2000 low near $5. As bust follows boom, and boom follows bust, Healthsouth's bear market into 2000 was thus followed by a glorious recovery boom that peaked with a failed breakout attempt near $20 in late 2001. It is that peak, and what happened since, that is potentially important now as we try to assimilate whether the stock market of early 2005 has also peaked, and try to answer the question of whether an impending bust awaits. Heathsouth's post crash recovery rally peaking action in 2000 and 2001, took the technical form of a head and shoulders top pattern - which is a prevalent theme at such critical turning points - with the failed rally to $20 representing the head, and smaller rallies and retracements on either side representing the left and right shoulders. Which brings us to our current stock market situation: is the S&P500 currently embarked on the final 'head' rally of such a boom-ending head and shoulders top pattern; or, indeed, has that final rally already begun to turn, thus the recovery top already in? With head and shoulders top patterns, as was the case with Healthsouth, the all-important technical line in the sand that marks the difference between bull/boom and bear/bust cycles is the support line of the shoulders and head rallies, known as the neckline. That critical support level was near $12 for HLSH, and comparable to the current 1100 level for the S&P500. Indeed, any sell-off to S&P500 1100 would confirm that a head and shoulders top is in play, and that boom is giving way to a new bust cycle of great importance. The average length of post war bull markets is 2.5 years, which sets March, 2005, as the pivotal expected turning point. The normal cycle peak would call for a corresponding inversion of bond market yield curves as the Federal Reserve Board raises short term interest rates to cool down speculative economic growth, and while the yield curve is indeed currently flat after a series of interest rate increases by the FED, it so far remains short of any recessionary inversion. The potential exists, however, for this important forecaster of a pending bust cycle to turn negative in a major hurry should the stock market fall hard from its current position, driving money into the relative safety of longer term bonds. Since any drop to S&P500 1100 - the signal a new bust cycle has begun - would likely lead to many weeks of failed rally attempts as the right shoulder is formed, there should be ample opportunity for investors to lock in profits and protect valuable assets before the worst of the icy plunge of the Wall Street bust cycle is upon them. By Kevin Wilde, Chief technical strategist for AlphaKing.com

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