SP500 Damage Done on Monthly Chart

Oct 6, 2008: 11:12 AM CST

Today’s equity decline undersay has stunning ramifications for the larger time-frame structure of the S&P 500 and other US Equity Indexes – we’re now at levels not seen since 2003.  Let’s take a quick look at this structure to see where this takes us.

S&P 500 Monthly Chart:

First, let me state that we’ve now officially ‘blown through’ the long-term (large scale) Fibonacci retracements from the 2002 lows to the 2007 highs.  The sellers took out the 61.8% Fibonacci retracement at roughly 1,080 this morning.

Price is undeniably in a monthly downtrend, though the 20 and 50 month EMAs have yet to cross (the 10 and 30 month EMAs have done so – a popular combination used on longer time frame charts).

Where’s the next level of possible support?  I suggest it’s potentially the rising 200 month SMA just under 1,000.  We may get a bounce off current levels, but should price test the longer SMA, a bounce would be in order.

Ultimately, I find it highly conceivable that we retest the 750 – 800 area which  marked the early 2000’s bear market low – it looks clearer than ever now that we’re headed there at some point – but not before a few more counter-trend rallies occur.

This is not an environment for aggression on either side (long or short).  Though it may not seem so, bear markets are much more difficult to trade than bull markets.  Case in point, it took only one year to totally destroy the equity gains that were achieved in five years – let that sink in.

It’s worth noting also that the momentum oscillator registered a new monthly momentum low not seen even during the devastating early 2000’s bear market – don’t overlook this point as well.

Scale your charts back to the larger time frame to see massive technical (price) damage being done across multilpe stocks and sectors – it’s horrific out there for investors and many traders as well.

I’ll keep you informed on new developments and insights across the various markets.

11 Comments

11 Responses to “SP500 Damage Done on Monthly Chart”

  1. Rafael Says:

    HI Corey, I don’t know if you remember me, but I commented on the 2 H/S in one of your post (I believe it was in August), and we talked about the DOW going down to 10.000. I cant find that post (I’m at work), but maybe you can review it and comment on it? Because we didn’t know about the crisis by then (at least not me) but technically we are there. thanks
    Rafael

  2. Tom Lattimore Says:

    My calculations are that indexes, in this bear market, for various reasons, will make 50% retracements from 1987 low to all time highs. I calculate 7948 for Dow, 896 for S&P 500 and for broader measure Value Line Arithmetic Index 1343. Appears to be getting there much quicker than even I thought. Your comments please Corey on these targets if possible.

  3. Tom Lattimore Says:

    Am reconsidering my extremely bearish position in view of Jim Cramer’s comments this morning to get out of market now that i just learned of. A broken clock is right twice a day and who knows with the extreme reading we are getting in VIX etc. Certainly he has to be considered a great contrarian indicator. But not enough volume? Lack of volume is never bullish. What say ye Corey?

  4. Corey Rosenbloom Says:

    Hey Rafael,

    Absolutely! Generally, I’ve kept my roaring bearishness private but yes, it’s been clear that the dominant pattern in the S&P has been the double top and for some time now, there has been near uniformity to the early part of the 2000-2001 decline to present, and we’re seeing history mirror itself at least on the technical picture of the S&P. The Dow was headed lower as well because of the same economic reasons (cycle) and you’re 100% right – here we are.

    The thing that’s surprised me is the ferociousness, or quickness of which we’ve hit these levels. I had a time target further out, but still, here we are.

    Thanks for your comment Rafael!

  5. Corey Rosenbloom Says:

    Tom,

    Exactly. That’s my sentiment – in regards to “We’re getting there quicker than I anticipated.” I’ve always had the Fibonacci retracements, but we nailed them so quickly. I figured the 50% would give us a steady bounce but alas that wasn’t the case (on the S&P 500, that is).

    I haven’t done complex Gann or Elliott yet, only anecdotal, ‘top level’ study, but what I can gather – from Elliott at least – is that we could be in a large-scale “Expanded Flat” pattern where the A Wave was the 2000-2003 decline; the B wave was the 2003-2007 advance (which took price slightly above the “A”), and then IF that is the case, then the C wave will take us at least to the prior 2002/2003 lows if not slightly beyond. Looks like 2000 completed a large-scale 5 wave impulse, and if that is the case, this Elliott interpretation would be the dominant one in my opinion.

    Until otherwise, the trajectory indeed is down.

  6. Tom Lattimore Says:

    If you do some such calculations please share, and thank you very much for your work.

  7. Corey Rosenbloom Says:

    Tom,

    I’m afraid not even Cramer can help or hinder this large-scale structure. Could anyone have stopped the 2001-2003 decline? Look at how symmetric it was in terms of impulse moves down with countertrend rallies up (on the S&P). We’re seeing very similar patterns with no evidence of a bottom (no retesting or basing). Every new low was thought to be the bottom, but every new low led to yet another spike lower low with the Fed sweeping in to rescue. Now, not even Congress can rescue.

    I honestly thought there would be a nice countertrend rally up after the Bail-out bill passed. My analysis had to be shuffled after Friday’s and – well – today’s price action. We’re grossly overdue for a countertrend rally up, but we don’t seem to be getting it – yet.

    Cramer/Schmamer. I feel for the people who follow him blindly. He had them aggressively buying the “Dow 14,000” top and now he’s got them panic selling?

    If this does prove to be the bottom and people start stringing together videos of him screaming “BUY BUY BUY” at the absolute top and then screaming “SELL SELL SELL” at the absolute bottom… who knows. MAYBE he’ll lose at least some of his appeal?

  8. Tom Lattimore Says:

    Thanks Corey. Great at times like this to have 2 or 3 people to bounce stuff off of even if you disagree with them. I don’t disagree with anything you are saying lately. Keep up the good work. Can’t believe you don’t have 100 plus comments per post.

  9. Corey Rosenbloom Says:

    Thanks Tom.

    I wouldn’t be able to keep up with all of those posts! I’ve had a bit of trouble with the comment script I’m running and have recently changed so now comments go through a filter but are unmoderated and show up immediately if they pass the filter – I no longer approve comments manually. Even then there was the same number of comments.

    Thanks for the comments! Keep in touch.

  10. Simon Drake Says:

    These articles and comments are great to read for a novice like myself – all of you collectively scale down the climate of fear (a fractal itself?) into a scientific sense – and that is so very helpful in these ‘interesting’ times!

  11. Cheap Purses Says:

    I am into web
    designing from 3 years and i am enjoying it the most.