S&P 500 Analysis
By August 1987, bonds had already peaked and reversed with interest rates heading higher.
The major indexes peaked late that month; then lower into the first leg down before the October crash.
The original forecast for the S&P to reach 3,300 was published on 3/25/19 (scroll down on this page to see forecast). Unless the trend shown is decisively broken, the market remains on track to reach that level.
When a major top is reached, the markets thin-out: Fewer indexes and individual equities participate in the move.
The same is occurring now.
While the S&P and Dow march higher, the Russell 2000 peaked nearly a year ago in August of 2018. The Basic Materials index (DJUSBM) peaked even farther back during January of that year.
The chart of the long bond (TLT as proxy) looks like something out of the 1999 – 2000 internet top.
Its different now from 1987: The U.S. is essentially bankrupt and bonds (and the dollar) virtually worthless.
A severe and permanent crack may occur at any time.
S&P Takes A Hit
It’s just after the open and the S&P is confirming an aggressive down trend-line.
Currently declining at approximately 81%, it won’t take long to get to obvious support levels.
If the S&P is going to make it to the 3,300 area by late August, early September, it’s got to have fuel.
Pushing below established support, causing the shorts to go short and the longs to bail out, may provide enough instability for a summer rally.
This downside action and the swiftness of it, is another reason the professionals prefer the short side.
We’ll probably have the obligatory picture of floor traders at the NYSE looking all pensive.
What’s really in their heads may be something like this:
“My boss is going to kill me. I've only made $500,000 on this down move and it should be $3,000,000 !!!” J
All of the financial air time and the continuous machinations over valuations are a distraction. Price action itself, reveals the next likely direction.
Meanwhile, back at the ranch, ABBV is in a downside breakout. Currently trading down -2.36%. That’s nearly twice the loss of the S&P at this time.
S&P "Usual Suspects"
Initial stages of a retrace may be in process for the S&P.
If so, we’ve identified a probable support level. That level happens to be the area identified on February 10th as a ‘danger point’.
A retrace at this time, puts aside the 3,300 top in the vicinity of June – July and now puts that top (potentially) around August –September … the usual suspects area for market tops.
Hey, Doc. How long have I got?
If the current trading channel is maintained, the S&P reaches 3,300 between mid June and mid July this year.
Empirical data has already been tabulated (click here) that market turns typically occur just before, or just after a holiday.
On or about July 4th would then be an obvious choice
However, the early pre-market session has the S&P down nearly one point (-0.31%) and threatening to break out of its trading channel.
Posting a low below the prior session low at 2,803.99 increases the odds of a downside break
On a separate note: We never got the sell signal in bonds and pre-market shows a continued move higher. So, we’ll wait.
Trading channel projects to 3,300 level sometime mid-year.
S&P Projection To New Highs
With such a swift and deep move lower last Friday, one would expect the market to be down anywhere between 2% and 5% (at least) at today’s upcoming open.
Instead, we’re trading unchanged to slightly higher in the pre-market.
The S&P has pushed past the previously reported Fibonacci Day 55, and is now out of range for a reversal at that time-stamp. It could still happen, but odds are low.
Even more disconcerting than a swift reversal, is the possibility of new highs but more importantly, the projected level of that high.
If the S&P is not reversing from here, it’s likely to test all time highs and if it breaks out to the upside, project to 3,300.
That’s a lot of market transactions and things that could happen in-between.
Will the S&P go to 3,300 and why is that (level) important?
Remember the S&P low in 2009, was 666.79
With that in mind, I’m including this link which is one part of a three part series. If you’ve not watched it already, it’s still available on YouTube but for who knows how long.
We’ve already built the case the data is false, the news is false (fake), the numbers are false and that something much bigger and widespread is afoot. The markets are just one part of that overall plan.
Day of Reckoning?
In the David Weis video produced about ten years ago, one of the topics discussed concerned ‘wide, high-volume price bars’.
Weis stated, it’s a market characteristic that when a wide high-volume bar occurs, it tends to get tested.
The specifics on why this happens was not discussed. However, if one thinks like a market-maker, it may be the wide bar area of the chart contains the opportunity to clean out stops or late-to-the-party traders or both.
Market behavior is then automatic
Orders are generated by computer to enable the area to be targeted. More info on that here: Scroll to Point No. 5. “Know your risk tolerance.”
Charts by StockCharts
S&P Day 55?
Since we’ve been discussing Fibonacci time frames on the S&P, we can see by pulling out a bit that we’re at another potential pivot.
In addition, the thrust to new post September 2018, highs creates an up-thrust condition.
Posting a new daily low at 2,799.78 (approx 280.30 on SPY) adds weight to a pivot lower scenario.
Either way, we’re at the danger point where risk (to go short) is least.
Projection to the 3,300 area.
S&P New High
As we head into the late part of the session, the S&P has pushed above resistance to a new daily high.
Doing so, puts it at Fibonacci 55 days from the low posted on December 26th.
The market may or may not close higher but that’s not the point.
The point is, there’s potential for a reversal and possibly a violent one; one that does not allow anyone to get in or out (long or short) comfortably.
Price action from the 12/26 low - to now, has created a huge trading range. A range with only two partially defined support levels: 2,722.27 and 2,443.96
Fibonacci Day 8
The initial move lower in the S&P took a Fibonacci 5 days. For review of the Fibonacci sequence click here.
We’re about a half-hour before the open and it looks like the S&P will post higher. If so, then we’re at Fibonacci Day 8 with potential for reversal.
Another market at Day 8, is Biotech (if it posts higher) and interestingly enough, the Russell 2000 would be at Day 13 with a higher open.
From empirical observation, Fibonacci time sequences are not in effect for long. By the time everyone figures it out, the (observable) sequence dissipates into apparent chaos.
Chaos … just a higher form of order.
Testing The Underside
With just a few minutes to go before the open, the market is set to begin slightly higher.
The potential for a rally was expected as detailed in the 3/9/19 update. So here we are, ready to test the underside of the channel break shown in the chart.
Charts by StockCharts
Are The Bears Locking Phasers On Target?
Are there similarities to this episode and current conditions. Has the ‘Enterprise’ (S&P 500) taken a surprise phaser hit?
Will the bears come around for another attack; if so, then what’s our response.
If you're short the S&P, the week ends with you most likely operating from a position of profit.
An obvious stop level would be the high set last week at 2,816.88 (approx: 281.87, on SPY).
Typical market behavior is to attempt a rally. We’ll be watching for that.
However, if the bears have assumed control, then continued downside action is the expectation.
Then & Now
March 13, 2019 will mark a Fibonacci 89, years since Smoot Hawley went into effect.
The attached chart (courtesy of macrotrends) shows the location of the protectionist tariff and the recovery market top just a month later.
In a few days, possibly on March 15th, tariff trade talks are set to resume between the U.S. and China.
In both cases, it’s not what’s in the legislation that matters. The important part is that market and social conditions existed to bring about those events.
As Prechter puts it (and to paraphrase), the news does not drive the market. The market drives the news.
In 1929, the market crashed and then went into a multi-month recovery. Once that move rolled over, it was a steady sustained decline into the abyss.
This time, the market ‘corrected’ down first: It then went into a multi-month recovery that appears to have turned.
What’s next is unknown. However, back-to-back protectionist trade events separated by 89 years (almost to the day), are yet another indicator that significant downside moves may be the more probable outcome.
S&P, Projection Target
With about twenty minutes to go before the open, the S&P is trading relatively unchanged.
The chart insert is another sobering picture for the bulls.
In addition to a potential right‑side channel contact noted in yesterday’s update, it appears the S&P has also met a 61.8% Fibonacci projection.
As a reminder, projections are different from a retrace level. The Fib tool shows projected market wave terminations based on prior wave behavior.
We can see how clearly the S&P not only lines up with the 61.8% level, but how it lines up perfectly with the 100.0% level as well.
3/5/19: S&P Trading Channel
During the pre-market session, the S&P is trading just a bit higher at +0.08%.
Yesterday’s penetration of the prior week’s low actually put the market in spring position (similar to bonds discussed in the previous update).
If the overall trend has shifted down, then we can expect the spring to fail at some point before a new high and the market to reverse lower.
The chart insert above, (StockCharts) shows a potential disturbing picture for the bulls.
If the supply line is in-effect and is confirmed by later price action, then we have an aggressive downward trading channel.
3/4/19: S&P: East Bound And Down:
At about 12:15 p.m. EST, the S&P posted an outside down weekly bar. It does not get any more obvious.
Our preparations to position short have already been completed in the preceding weeks. There was just one analysis bobble at the narrow range bar during the week of February 8th.
We’re on the short side (but not in the S&P) and will be monitoring price action to determine if our trade set up has potential for failure or to locate additional points for entry.
Be on guard for the possibility that bonds and the markets may decline simultaneously.
With that in mind, the bond proxy TLT, may be rising just a bit today but it probably is a result of last Friday’s penetration below established support.
That penetration effectively sets up a spring condition. The rise in bonds may be a response to that trade set‑up.
Of course, we expect the spring to fail at some point and for bond prices to continue lower.
Note: There're still four more trading days to complete the S&P weekly bar. Anything can happen.
2/18/19: S&P Pushes higher, out of danger for now:
The S&P hesitated at the identified danger point in the narrowest range since late September, last year.
Had one positioned short at this interval, the loss on being stopped out (at a new weekly high) would have been minimal.
Working several attempts to position long or short in a market, according to Dr. Elder is a behavior pattern associated with the professional. Amateurs will make one attempt and if stopped out or forced to exit out, will not re-visit the set up, period.
Livermore called this type of successive positioning action as “probing” the market. He would take part of his account, enter a position long or short and then observe if the probe held. If so, he would increase position size.
As the S&P has moved higher, the resistance area identified is the next level to observe if and when price action contacts that area.
2/11/19: S&P Still In Danger?
What exactly is the danger point?
Just because today’s close was seven one-hundredths of a percent higher (+0.07%) than Friday’s session does not negate the potential for a reversal.
The chart insert is a close‑up of the S&P.
During today’s session, price action has essentially come to a standstill.
The danger point is a location on the chart where support or resistance has been penetrated with risk and volatility minimized.
S&P Meets Target, Now At Danger Point
The S&P has met its measured move target and is at the danger point.
It's not the top or bottom of a move. It’s the location of psychological extreme where both the bulls and the bears are in the greatest amount of pain.
Price action could go either way. In Wyckoff’s book from 1910, he talks about the “weight of a feather” could move the market up or down.
That is where the S&P stands at this point. Monday’s price action will tell us if the bulls remain in charge or if it’s time for a reversal and possible re-test of the December, 2018 lows.
H&S Pattern Reversal?
Can a massive Head and Shoulders pattern be negated? It’s happened before and the result was the 2007-2008 melt‑down.
Way back in October of ’02, the S&P was set to break below a well established neckline that had been constructed over a four year period.
A break would have resulted in a measured move decline of approximately 45%, putting the S&P down to around 1993 levels. The excess of the Internet bubble would have been (completely) cleared out and a new, sustainable bull market may have been the result.
Instead, and only years later was it hypothesized, at the precise moment of neckline breakdown, certain entities that have unlimited resources decided to force (or foment) a reversal of the trend. We know the ensuing result.
Now, we have the market apparently reversing (again) from a well established H&S neckline and well into the 50% retrace level.
Will the market move to new highs? More importantly, does it really matter?
Could the S&P make it all the way to the 2,645 level?
Typical S&P behavior is to retrace 50%. From empirical observation, this level is contacted more times than 38.2%, or 61.8%; so just the S&P behavior itself favors a 50% retrace.
However, it should be noted, on a close basis, the 2,485 level (where the market closed today) is an exact 23.6% retrace. This could be a pivot point as well.
The market itself will define where the pivot will be. At this point, from the 12/26 low, daily price action is making higher highs and higher lows.
The major trend break in the S&P 500, tells us the ten year bull market from the 2009, lows is finished.
What happens next is obviously up to the market itself. However, an estimated (first) support level is around 2,135 as shown.
12/21/18, 8:52 a.m. EST
That did not take long. The S&P confirms the neckline as it touches, then bounces (sort of) higher.
The standard measured move for an H&S top is shown.
S&P Head and Shoulders
The S&P looks to be forming a Head & Shoulders (bearish) pattern. If this pattern is in-effect, then we’ve identified possible key areas.
Could there be a decline into the proposed neckline area before the end of the year?
Well, it makes sense. The market is down for the year and accountants are likely calling their clients advising them to sell their losers and get a tax break.
That would set up for the (potential) January effect in the New Year.
1/6/19: S&P 500 At Resistance
The weekly chart of the S&P 500, shows we’re testing the underside of resistance. Support was decisively penetrated during the week of 12/21/18.
That support has now become resistance. This is typical market behavior. If the S&P is to rise higher into a 50% retrace, then price action may have to retreat (to build fuel) for an advance.
With such a decisive penetration below support, a move back above this level, now resistance, would be a significant bullish indicator.
S&P 500 Long Term View
A triangular wedge typically occurs at the end of a long and sustained move.
The S&P chart shows the last significant wedge was about seven years ago.
Especially bearish in the current structure is the 'throw-over' and return into the pattern.
Unless there's more manipulation to the up-side, the take away is the bulls have exhausted themselves after years of fomenting the market higher.