SP500 Value 945 is Key for Breakout

Jun 1, 2009: 9:44 AM CST

I take it the morning’s upward move is a shock to many traders – let’s take a quick look at the daily chart and a particular look at the 945 price level and why the market needs to exceed this level to confirm a breakout.

S&P 500 Daily:

I mentioned in my prior posts on the “Descending Triangle in the S&P 500” and also “S&P 500 Consolidates in Tight Range” how it would be best to wait for a confirmed breakout to occur before trying to position yourself for an eventual breakout – all the traders with whom I spoke were anticipating a downward break.

Price consolidations are tricky to trade, and many times, price will eject outwards in the opposite direction than anticipated.  Sometimes the initial break will be false (a trap) which often leads to a larger than expected move in the opposing direction after the trap is “sprung.”

The dominant short-term technical pattern appears still to be the descending triangle, which has a price projection target upwards of about 950 on the S&P 500.

To project price out of a triangle, take the height of the triangle (925 minus 875 equals 50) and then add this value to the point where price broke upwards (about 900).

This gives us a target close to confluence resistance at the 945/950 level from January’s high.

Watching 945/950 is important, because if bulls can push prices and hold them above 950, then we will officially classify price on the daily chart as being in a confirmed uptrend (having formed a higher low, higher high, and then taking out a key swing high… along with the structure of the 20 and 50 EMAs being bullish and price being above the 200).

The volume pullback on the chart is actually slightly bullish because volume (participation) is expected to trail off during a correction and pick-back up once the prevailing trend resumes – let’s see if we can get a higher volume reading today that breaks above the red volume trendline I’ve drawn.

So 950 is the line in the sand – it’s the last place bears can logically place their stops.  If bulls can hold above that level, they would have pulled off an amazing coup that seeemd to run afoul of fundamental, quantative, and technical analysis (resistance) observations.

It’s partly that reason – so many short-stops being taken out – that has added fuel to the rising price fire because so many people were caught leaning the wrong way.

Corey Rosenbloom, CMT
Afraid to Trade.com

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18 Comments

18 Responses to “SP500 Value 945 is Key for Breakout”

  1. Bhupi Says:

    Corey – dont you think it is making a The Head and Shoulders bottom, which can lead to good break out,

    Please suggest

  2. marc Says:

    Corey I totally agree with your analysis.
    Nevertheless, I think short sellers should stop giving them a free lunch. Its just too obvious that the gvt funds are partly behind the market and lets admit it… the stock market going higher is a way to save the economy eventually and build up confindence in the real economy. S&P is now past the 200ma and there's another way to make this look even more bullish.
    yet again, this is my humble opinion & I've been burnt on the short side.
    cheers

  3. Corey Rosenbloom, CMT Says:

    Quite possibly yes – I always miss those patterns – for some reason I have a blind spot to inverse H&S.

    This would be more powerful (meaningful) than the supposed Gold Inverse H&S because we're actually reversing something here in the S&P 500 – a lengthy downtrend.

  4. Corey Rosenbloom, CMT Says:

    Marc,

    Excellent points – who or whatever's behind this bull rally, they've done a good job – props for that.

    Sentiment has ticked up, people are more hopeful/positive and everyone seems to think the worst is over.

    As people have been noting recently, a stock market and an economy are separate entities – one is easier to … control … than the other but long-term valuations often rule the day, even in the face of 'irrational exuberance'.

  5. Laksh Says:

    For the inverse HS to form, shouldn't SPX form another shoulder [= downleg]? How much importance does it to form 2 shoulders? Can HS be valid if 2 shoulders are not formed?

  6. Bhupi Says:

    my shoulders are one on end of dec08 and one we when we touch 950 in june..

  7. SMC Says:

    Just some comment here:

    i) The breaking of trend line (the red line you drawn is the one with the May and Sept 2008 as touch points, correct?) may last for 1 or 2 days, especially for the first few days of the month when the 401k paycheck deduction money keep flowing in.

    ii) Volume is still anemic but options volume definitely pick up — easy manipulation.

  8. Tom B Says:

    Corey,

    According to EWI's latest Financial Forecast just released on 5/29, Hochberg and Kendall still stand by their primary wave 2 S&P target between 1000 and 1100. Do you agree with that? Also, they say “when wave 3 moves into full gear on the downside, the reality of the bear will reassert itself more forcefully than ever”…wow! We have to assume they believe we're going well below the March lows, correct?

  9. Corey Rosenbloom, CMT Says:

    Tom,

    I'm not a subscriber to their service so I don't know the specifics but I do know Mr. Prechter's analysis and his long-term targets and while I have great respect for EWI and Mr. Prechter and believe they're the #1 source for Elliott Wave analysis/education, I respectfully degree with their long-term projections and wave count.

    I've been with them on both my counts (http://blog.afraidtotrade.com/sp500-elliott-wav…) in terms of the 1,000 to 1,100 area being both a target and significant resistance, so yes, I could see us getting there easily, however what happens next is up to interpretation.

    It will be a down-swing, but of what duration?

    Maybe it's a Wave 2 down of a new primary bull market (less likely)

    Maybe it's a Wave 5 down to truncate or exceed below the 665 lows.

    Maybe it's a Wave B of 4 (Down) to form a larger zig-zag (less likely).

    I do not, and will not accept that we are about to go into Wave 3 down with an ultimate target being 400 on the Dow Jones Index. Not saying it 100% won't happen but I can't conceive of a possibility of it happening in my personal analysis.

  10. Bhupi Says:

    Corey – dont you think it is making a The Head and Shoulders bottom, which can lead to good break out,

    Please suggest

  11. marc Says:

    Corey I totally agree with your analysis.
    Nevertheless, I think short sellers should stop giving them a free lunch. Its just too obvious that the gvt funds are partly behind the market and lets admit it… the stock market going higher is a way to save the economy eventually and build up confindence in the real economy. S&P is now past the 200ma and there's another way to make this look even more bullish.
    yet again, this is my humble opinion & I've been burnt on the short side.
    cheers

  12. Corey Rosenbloom, CMT Says:

    Quite possibly yes – I always miss those patterns – for some reason I have a blind spot to inverse H&S.

    This would be more powerful (meaningful) than the supposed Gold Inverse H&S because we're actually reversing something here in the S&P 500 – a lengthy downtrend.

  13. Corey Rosenbloom, CMT Says:

    Marc,

    Excellent points – who or whatever's behind this bull rally, they've done a good job – props for that.

    Sentiment has ticked up, people are more hopeful/positive and everyone seems to think the worst is over.

    As people have been noting recently, a stock market and an economy are separate entities – one is easier to … control … than the other but long-term valuations often rule the day, even in the face of 'irrational exuberance'.

  14. Laksh Says:

    For the inverse HS to form, shouldn't SPX form another shoulder [= downleg]? How much importance does it to form 2 shoulders? Can HS be valid if 2 shoulders are not formed?

  15. Bhupi Says:

    my shoulders are one on end of dec08 and one we when we touch 950 in june..

  16. SMC Says:

    Just some comment here:

    i) The breaking of trend line (the red line you drawn is the one with the May and Sept 2008 as touch points, correct?) may last for 1 or 2 days, especially for the first few days of the month when the 401k paycheck deduction money keep flowing in.

    ii) Volume is still anemic but options volume definitely pick up — easy manipulation.

  17. Tom B Says:

    Corey,

    According to EWI's latest Financial Forecast just released on 5/29, Hochberg and Kendall still stand by their primary wave 2 S&P target between 1000 and 1100. Do you agree with that? Also, they say “when wave 3 moves into full gear on the downside, the reality of the bear will reassert itself more forcefully than ever”…wow! We have to assume they believe we're going well below the March lows, correct?

  18. Corey Rosenbloom, CMT Says:

    Tom,

    I'm not a subscriber to their service (though I am an affiliate) so I don't know the specifics but I do know Mr. Prechter's analysis and his long-term targets and while I have great respect for EWI and Mr. Prechter and believe they're the #1 source for Elliott Wave analysis/education, I respectfully degree with their long-term projections and wave count.

    I've been with them on both my counts (http://blog.afraidtotrade.com/sp500-elliott-wav…) in terms of the 1,000 to 1,100 area being both a target and significant resistance, so yes, I could see us getting there easily, however what happens next is up to interpretation.

    It will be a down-swing, but of what duration?

    Maybe it's a Wave 2 down of a new primary bull market (less likely)

    Maybe it's a Wave 5 down to truncate or exceed below the 665 lows.

    Maybe it's a Wave B of 4 (Down) to form a larger zig-zag (less likely).

    I respectfully do not, and will not accept that we are about to go into Wave 3 down with an ultimate target being 400 on the Dow Jones Index. Not saying it 100% won't happen but I can't conceive of a possibility of it happening in my personal analysis taking all things into consideration (beyond the technicals).