March 7 Weekend Look at the SP 500 Index

Mar 7, 2009: 3:17 PM CST

What a week we just endured in the markets.  Let’s take a step back now that the weekend is upon us to look at the Weekly and Daily Structure of the S&P 500:

It’s been an absolutely brutal and devastating past four weeks for investors – I cannot underscore this point enough.  The S&P has fallen 22% in the last four weeks which classifies for its own definition of a “Bear Market.”  There’s some good news though.

Within the (Elliott) Wave Structure, it appears that price is coming to the end of the final 5th Wave and that a rally may be expected to take place from here.  Also, we see a positive momentum divergence forming as price hits new lows not seen since 1996.  Fifth Waves often form on positive momentum divergences, so we are seeing this behavior conform to expectations.  Volume is also at relatively high levels into these price lows.

For a full image of the proposed Elliott Wave Count on the S&P 500, see this chart (link) or the blog post entitled Similarities in 1937 and Today.

Let’s drop down to the Daily Chart to see if we can get any insights there.

S&P 500 Daily:

Well, let’s start with the positive.  Price reached a new low beneath 700 on a Triple-Swing Positive Momentum Divergence (new low in October; New low in November; new low in March) which could arguably be classified as a “Three Push” pattern which is a type of reversal pattern.

Price also rallied sharply into Friday’s close which formed a Doji which is often seen as a short-term reversal pattern (technically, a doji represents “indecision” between buyers and sellers).  Also, we are at the bottom of the Bollinger Band… but have been so since mid-February.  In strong moves, price has a tendency to “Ride the Bollingers” up or down.

Volume is higher than average and certainly volume has been increasing as the year progressed… though that’s not necessarily a good sign, as we would see this as a ‘confirmation’ of lower prices through higher (trending) volume.  There does not seem to be a “blow-off” or capitulation volume spike that is frequently seen at bottoms (reference October 13 and November 23, 2008).

In the short-term Elliott Wave structure, we appear to be ending – perhaps – wave (3) of (circled) 5 which – if the interpretation is correct – hints that we have a wave (4) to the upside (which could begin as early as Monday next week) which could take us to EMA resistance near 750 before a final wave (5) takes us back to new lows (or a test of the lows) wherein we might get the volume surge/capitulation and surge in the $VIX and Put-Call ratio that appear to be lacking as we form these new lows.

In other words, from a sentiment standpoint, it seems like this is not yet the actual bottom (there’s no panic as indicated by classical sentiment measures).  We’d prefer to see a surge in the VIX, put-call ratio, and volume to feel like a bottom was put in place.

Let’s keep watching the structure develop, but it seems odds favor a retracement swing up beginning next week… but if we can’t even get that retracement… panic surely would set in.

Corey Rosenbloom
Afraid to Trade.com

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31 Comments

31 Responses to “March 7 Weekend Look at the SP 500 Index”

  1. Anonymous Says:

    Given the action late on Fri. (short covering etc.) and being in position for wave (4), I was able to go long the ERX for the bounce and lock in some gains. Then on the retrace kept put on a small long position for next week.
    Elliot theory would indicate a sharp (4) when it does occur. And fridays late action shows shorts are not confident to hold over the w/e.

  2. Anon Says:

    Corey, I don’t know much about EWs. But if the doji is a repeat of Feb. 9th and what happened after, that sucks.

  3. Anonymous Says:

    Corey,

    You don’t think Friday was a PPT day? Feel-good the weekend and dance on the edge of the crater…

  4. Corey Rosenbloom Says:

    Anon #1,

    Good move in making profit there!

    You’re right – I didn’t put that in the post. Because 2 was a Flat, 4 should be a sharp perhaps zig-zag ABC of sorts. May even break above the 20 day EMA.

    I had that same thought towards the end of the day. “Gosh, shorts are taking profits and don’t want to be caught in case something bullish happens over the weekend”

    Maybe something will.

  5. Corey Rosenbloom Says:

    Anon,

    No, no. I didn’t mean the doji here is going to foreshadow a down-move – just the opposite. Dojis are traditionally reversal signals (short-term) so it actually hints at higher prices off the current doji.

  6. Corey Rosenbloom Says:

    Anon #3

    Either shorts didn’t want to hold over the weekend, were taking their profits, or there was some fishy business going into the weekend. Even though I’ve been predicting a big Wave 3 of (5) in private and on the blog here, the ferociousness of this recent downswing surprised even me. I didn’t expect it to be *that* bad.

    But the end-of-day rally does smack of “something’s up”.

  7. Anonymous Says:

    Corey,

    Do you feel, that the directional movement ADX and its +DI and -DI are *sure* indicators to anticipate a *guaranteed* period of at least 5 trend-days? In that +DI crossing downward the ADX signals such a period to come of lowering prices and -DI crossing downward the ADX signals such period of rising price. Either situation only occurs 3 – 4 times a year, but than it can be VERY profitable. Maybe you would want to do a MDI analysis on the three major indices?

  8. Anonymous Says:

    Friday opened with a huge rally up to +150 and closed +32. That’s bullish? Seems more like bears saying “I’ve made enough; let’s close up shop for the weekend”. Every chart I look at signals a reversal day Friday, but a reversal down, not up. The fact that it closed lower than its high by a good 100 pts is one obvious point. SDS has a hollow red bar, which generally means reversal up. A black bar indicates reversal down. Since there’s a reversal up for SDS, it’s bearish. I suppose we could move higher from here, but I can’t see a logical reason.

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2393449&cmd=show%5Bs154269351%5D&disp=P

  9. alent1234 Says:

    about the vix, the end of the 2000-2002 bear was on a lower vix. the VIX maxed out in July 2002 at the height of the worldcom scare and by the time october rolled around the vix dropped.

    Just like Bob Prechter said in his book, wave 5 is when everyone is scared even though things have started to turn around

  10. Corey Rosenbloom Says:

    Anon,

    Gosh nothing is guaranteed in this business.

    I’m more interested in the ADX itself than the DMI+ or DMI-.

    It’s something I can look into with TradeStation, though.

  11. Corey Rosenbloom Says:

    Anon #8,

    The doji is neutral, signaling indecision. It’s frequently seen at short-term turning points.

    But you’re right – a sudden end-of-day surge doesn’t not turn the tide like a steady trend up the whole day. It’s more a technicality than a sign of strength I suppose.

    We are deeply oversold, but that might mean little given the ferocity of this downswing.

  12. Corey Rosenbloom Says:

    Alent,

    I’ll have to go back and see that for insights.

    I forget where but I read an article recently that we could get a bottom not of capitulation but just of general malaise. Or Rolling Capitulation I think is the word they used. Gradual.

    Yes, 5th Waves can be pretty brutal. Psychology wise that is. They’re usually not as brutal as 3rd waves. With the extended (and… we still could be in it…) third wave that began in May, we’d expect a tame or normalized 5th wave. But that doesn’t mean people will feel good about it!

  13. Reggie Perrin Says:

    NB MARCH QUARTERLY OPTION EXPIRY

  14. Corey Rosenbloom Says:

    Reggie,

    I don’t understand.

  15. Dude Says:

    This was my first experience w/your site. It’s now a favorite. Very nice assessment of the week. When the mkt closed on Friday I told the wife, reversal on Monday! Nice little doji smooch w/good volume.

  16. Anonymous Says:

    I usually only day trade but the upside swing potential looks to good to miss. Friday trapped some shorts.

  17. John (traderindicators.com) Says:

    Anyone shorting from here is either foolish or a gambler

  18. Richie Says:

    Corey,
    I notice your attention to overall volume and am wondering if you have taken a look at just how much overall volume in the first 2+ months of 2009 has been skewed by the incredible volume in a handful of low priced financials such as BAC,C & GE. It appears that volume may be well below 2008 levels when the top 5 or 10 stocks on the volume list are taken out of the picture.
    Any thoughts?

  19. Anonymous Says:

    Possible reading of the S&P chart?
    1) symm wedge with aperture 1010 – 760 = 250 points (Nov 4th to
    Dec 20)
    2) break out at 825 points (februari 17)
    3) price target: 825 – 250 = 575
    4) Now 685, so another 110 points to go in 2 days. Impossible? See Nov 19th and 20th.

  20. Corey Rosenbloom Says:

    Dude,

    Doji smooch. haha interesting terminology.
    Glad to have you aboard!

  21. Corey Rosenbloom Says:

    John,

    That’s kind of what I’m trying to say but in a nicer way.

    With the doji and oversold conditions, it seems risk is now to the short-side and opportunity – for perhaps a quick scalp up – is to the upside… of course with limited risk (a stop just below Friday’s lows).

  22. Corey Rosenbloom Says:

    Richie,

    Excellent point. I’ll have to look into it further but you’re right – there was a day in late February when 1.75 billion shares traded in Citigroup ALONE. That most definitely will have an effect on NYSE/overall volume.

    I’ll have to do some more digging in this area.

  23. Corey Rosenbloom Says:

    Anon,

    That could be the dominant pattern – perhaps some sort of triangle consolidation.

    It’s even possible that Wave 4 ended where I have labeled Wave (2) (doji) which would place the corrective Wave 4 more in context and label it a Triangle (5 internal wave structure).

    If so, then what we’re seeing is Wave 1 (of (5)) down.

    I’m not willing to get that bearish – I tend to stay away from the most bearish counts but am aware of their existence and will need to shift to those counts if need be.

    Everyone, think of the implications from an Elliott view… in that we have 5 fractal waves to the downside to go to complete Wave circled 5. That would certainly cause capitulation and some severe stress if that were to be the case.

  24. jeremy Says:

    I am not sure if you can trade the fractals, given a wide degree of interpretation, should you just not remain neutral and just wait for confirmation that the 5 wave downturn is complete, with the view to going long.
    Short is starting to feel a little risky with a mature trend, long now feels too soon, the economic and corporate data will be terrible, no upside catalyst yet!
    Great site by the way, many thanks.

  25. Corey Rosenbloom Says:

    Jeremy,

    I think you nailed the feeling about the market right there.

    Too late to get short; too early to get long.

    There could come a massive reaction up at any moment… but there’s probably a little more downside yet to come.

    It’s like a jack-in-the-box I guess and you’ve turned that crank more times than you expected. You’re tense and you know the jack will pop out any moment now… but just how many more cranks to we have to turn for it to pop-out?

    Excellent summary there.

  26. jeremy Says:

    Corey,thanks for your comments.

    I find the best trades are high probability ones and given the strength of this bear, the confirmation to go long would have to be very significant, i don’t see that yet and am happy to miss out on fractal wave 4, in fact if it goes up alot i might be tempted to open a small short.
    If we see a capitulation fractual wave 5, and other confirmations, it just “might” be time to think contrarian-thanks to Elliot wave theory and this insightful site.

  27. Corey Rosenbloom Says:

    Thanks Jeremy.

    Agreed – it’s often low probability to trade counter-trend. But trends don’t last forever and we need to be agile enough to recognize with enough confirmation that an end of any trend may be upon us.

    Looks like the structure would have us move up one swing and then down in a final “oh my god the market is going to go to 0” swing as any remaining longs are bloodied out of the market.

    But this close to the end, it could be bears that get suddenly bloodied as well.

  28. Dave Says:

    Base on spiral calendar and tide/gravity studies I see Wednesday March 11th as the prime date for a turn higher lasting at least a couple of weeks. There’s also a small chance we may see a washout decline into that date.

  29. Dave Says:

    Based on spiral calendar and tide/gravity studies I see Wednesday March 11th as the prime date for a turn higher lasting at least a couple of weeks. There’s also a small chance we may see a washout decline into that date.

  30. bogistia Says:

    Hi Corey,
    i have been reading your blog and analysis for some time, and i am personally interested in the Elliot Wave analysis that you make. Regarding this picture, i think we are heading for a wave (4), which should develop as a zig zag. I have 15 sp500 contracts from 677 and i would like to ask you, how you see the development of the (4) wave and its targets. I read in another analysis that wave (4) would last 5-6 trading days (which means Fraiday or Monday neyt week) with a Target of 770. Can you share your opinion to my post. Thank you!

  31. AtT Best of 2009 Part 2 « The Trending Monster Links Says:

    […] March 7 Weekend Look at the SP 500 Index (My analysis AT the March Low) […]