Weekend SP500 Overview with Projection
We’ve had a steady rally all last week in the major US Equity Indexes, but let’s focus on the technical position of the S&P 500 and view both the daily and weekly charts and note possible projections and confluences.
S&P 500 Daily:
Price is clearly in a daily downtrend with a distinct series of lower lows and lower highs. The orientation of the key daily moving averages is in the most bearish orientation possible.
However, there is a positive momentum divergence building under the price action, which hints at underlying bullish strength (or the diminishing influence on the part of sellers) which could change (or is currently changing) the price structure of the market.
Price is currently testing and gently breaking above the 20 day EMA, an occurrence which happened in early November that resulted in a price ‘failure test’ of this key average. Should price hold above this level, the next target would be the falling 50 day EMA which would be just above 950.
Volume plunged during the week as price moved higher, which is a bearish non-confirmation (of higher prices) but also take note that last week was a shortened, holiday trading week so don’t try to read too much into last week’s volume trend.
S&P 500 Weekly:
The weekly chart leaves much to be desired for the bulls. Price peaked in October 2007 and has steadily fallen since that peak to its current low of 750 in November 2008. The market has shown clean Elliott Wave patterns, complete with fractal moves in each larger wave, and odds are that we have finished the brutal third wave down and are beginning a fourth-wave corrective (three wave “ABC”) impulse up. Notice the positive momentum divergence on the weekly chart as we go into this structure.
How far might the fourth wave go (if indeed that is the current structure)?
I ran some Fibonacci confluence numbers and – sparing you all the lines on the chart – the number that seemed to generate the highest confluence was 1,093.
1,063 is roughly the 38.2% retracement from the 1,550 price high to the 750 price low.
1,093 is the 50.% retracement of the 1,440 to 750 price swing which composed Wave 3.
1,096 is the 61.8% retracement from the 1,300 to 750 price swing which took us from the doji at confluence resistance in August 2008 to the most recent price lows.
When working with Fibonacci, it often pays to study ‘confluence price zones’ rather than just a singular Fibonacci grid. There are even more price grids we can draw that take us further back but be careful not to draw dozens of lines on your charts.
That being said, look for the next move in the market possibly to be an up-move through the end of the year (of course, not straight up, but with smaller waves up and down) that take us into confluence resistance via the 20 week EMA (currently just above 1,050) and the important Fibonacci cluster zone of 1,093.
All things being equal, I will set this as our next target price to reach in the market, if not by year’s end, then slightly beyond.
Of course, this view will be invalidated should price move down and take out the 750 price lows at any time prior to the possible up-move materializing.
We’ll continue to follow these developments day-by-day as they happen.
Corey Rosenbloom
Afraid to Trade.com
Could be said the light volume is the absense of sellers, but it too is the absence of buyers… Lets see if the big guns give us a direction next weeek. Short term the qqqqs and tran had an inside day and oil futures look set to fall out of their wedge with a retest of the lows for gold ( which moved up with the market ).
Here’s something else about the 1093 area. On the SPY chart, there’s a 2pt. gap down from 109.6 on Friday 10/3 to 107.6 on 10/6, that I would hazard sets off all kinds of sell orders if it comes close to filling.
do you cite candlesticks – isn’t that considered a bullish engulfing bar on the weekly? which means change in direction?
Corey,
It is improbable that, the day the Dow futures traded -500 pts, causing all kinds of panic in the world markets, the day’s low for Dow was not registered as the terminal of wave 3.
Could we look at the corresponding wave count for DAX for example?
David,
Holiday weeks can be tricky on volume interpretations, particularly with indicators such as OBV.
Next week should provide a little more direction in the various markets which should continue for at least the next swing (in other words, it shouldn’t be too terribly erratic next week) but we’ll see.
PK,
That’s true – I missed that.
It’s going to be very interesting to see how price trades at the 1100 level if it makes it there. There seems to be a magnet pulling it there but if price can break all the thick resistance/supply there, then we’re in for a bullish treat. But I can’t see it doing that yet.
Hi, great EW post thanks! I can see the influence of Connie Brown in your style.
John,
I missed using that in the analysis – thank you. Indeed, that is an engulfing, quite bearish candle that just occurred and I should have highlighted that. I mainly focus on the major patterns when they correspond with key resistance or support (such as dojis or hammers). Candlestick analysis is important as a confirmation/non-confirmation mechanism but I probably don’t get as complex as I should with the analysis.
That weekly candle is called a http://www.streetauthority.com/terms/m/marubozucandle.asp
In the last 6 months in bank and SPX this candle has given very mixed results. It has either preceded a reversal or base building.
Corey,
I took at the SPYS for a look at volume over the last 3 years and in thanksgiving week there wasnt in the past a signifigant drop off in volume ¿
Corey –
I do not see an upside to the SP, NAS, or DOW. If you draw the trendlines correctly and with Line Charts (3 month Daily Close)you will very quickly see that they are pushing hard up against strong overhead resistance. Thanksgiving Week is NOT a good indicator of what is to come and more specifically not this week. The volume was horrible and the major players were all away. The markets will be down this week!!! Suggest you look at the last three months and how they all started – DOWN BIGTIME! December will be no expection as indicated by the Trendlines. I also would suggest that you may be spending way too much time on Elliott Wave Theory. It is not accurate in the long run and is open for wide interpetation. In the end it all boils down to only a few things – Support, Resistance, Trend, Volume and Price Action. I have not traded anything else for years and have enjoyed substantial profits with minimal risk.
Mark when EW lines up with traditional TA it can produce results. 2 people will use the same tools two different ways. I like EW when it doesnt conflict with more ” traditional TA ” ultimatley trendlines have to be broken too and a 4th wave is due. The ( expected ) selloff in the early portion of the week respects the trendlines but also the notion of an ABC , getting a higher low is key and suits both camps.
Jeepers Im looking at my last post and cant spell for pidoodly when i type fast. I meant to say i took a look at the SPYs.
is the projection still valid?