A Quick Look at the Current S&P Weekly Structure

Sep 5, 2008: 12:39 AM CST

Today’s 3% index rout reaffirmed the predominant and primary downtrend on the major US Equity Indexes, and also confirmed the breakdown of consolidation from a bearish rising wedge as the dominant technical pattern.  Let’s look at the S&P 500 weekly chart to see the structure.

S&P 500 Weekly:

Price peaked in October, 2007 and a primary downtrend was confirmed into 2008 (via a variety of methods, including a moving average bearish cross, lower high & lower low, break beneath all moving averages, etc).  Thus, any rallies in price must be labeled as counter-trend rallies.

The July 15th bottom should have been classified as such, and although you can certainly profit on counter-trend rallies, you must know that the risk is higher (it can be like playing musical chairs) and the odds of success are lower.  At any point in time, the prevailing trend can reassert itself, and the dominant technical structure (trend) will take over.  Such is what happened Thursday.

Price found resistance just above 1,300 at the 32.8% retracement of the May high to July 15 move, which also corresponded with a confluence of the weekly 20 and 200 week moving averages – remember that confluences of support can be very difficult to overcome, and often set-up excellent, low-risk trading opportunities.

Now, the bearish wedge on the indexes (I’ll try to detail that later) has been broken, confirmed, and we have bearish price projections, the first of which is a retest of the July 15th low (around 1,200).  Failure there will take price lower, perhaps even to a ‘measured move’ of the prior bear swing – I’ll discuss that more should the break of the July 15th low occur.

For now, don’t panic – manage your risk – and stay on top of any open positions.  The path of least resistance for the US Equity market appears to be to the downside, keeping in mind that September has a historical significance as a generally ‘bearish’ month.

2 Comments

2 Responses to “A Quick Look at the Current S&P Weekly Structure”

  1. Don Da Mon Says:

    Can you present a what if scenario if the July 15th low is broken? It’s better to understand it before it happens rather than after.

  2. Corey Rosenbloom Says:

    Don,

    I’ll try to do so in a post soon, but the first ‘line of defense’ or support would likely be the large scale (2002 low to 2007 high) 50% Fibonacci retracement at SPX 1,171. That could also coincide with early 2002 resistance (becomes support). Beyond that, the 61.8% large scale retracement is at 1,076.

    This is just looking at the Fibonacci retracement levels.