A Long Term View On….The S&P 500
- Posted by Greg Harmon
- on January 4th, 2013
A review of the Grand Daddy of the Indexes, the S&P 500 ($SPX, $SPY), rounds out the series. Surprised it is not about the Dow Jones Industrial Average? Not if you are a trader. The S&P 500 has long been more important as it is large cap but a lot more diversified than the 30 stock Dow. So what does this behemoth have to tell us with its price action? Lets start with the daily picture. There are a lot of good things going on in this short term view below. The move Wednesday broke above the downtrending resistance level and it held on Thursday. This came off of a higher low at 139.54
on the last pullback. The Bollinger bands are opening allowing for a move higher and both the Relative Strength Index (RSI) and Moving Average Convergence Divergence indicator (MACD) support the bull case. A move over 148.11, the high from September, will seal the deal for further upside price movement. But that is just the short term case, the weekly view below refines the picture a bit. The rising wedge from the beginning of 2011 shows this week rebounding off of the bottom rail. The Bollinger bands are at least flat if not opening and the MACD is crossing to positive. Focus a little more closely on the RSI in this chart and its relationship with the Bollinger
bands and something different is happening right now. Each of the last 4 times it has hit the top of the Bollinger bands the RSI has been at or above the technically overbought area, but not this time. This time the RSI is in bullish territory but has a lot of room higher before being technically overbought. That is a positive distinction. Look for a test at the top near 150 and a break over to unleash the SPY higher, with a target on the wedge break at 177. A break below the wedge and under the last low would set that target at 112. Moving out one step further to the monthly chart shows that the SPY closed out the year with back to back Doji candles maintaining at the highs and the 88.6% retracement of the major move lower. This has continued to hold the first few days into the new year, pushing up against that Fibonacci level. The RSI is in bullish territory and rising and
the MACD is positive, both supporting further upside. Price is also running above all the SMA’s. The picture is bullish but those Doji bring caution. They indicate indecision, not a reversal the upside bias remains. The Median Line of the bullish Pitchfork is also in control pushing it higher but also attracting it for a possible short term pullback. Resistance higher comes at 147.21 and 157.52. Above that is a triple top break out with a target of 235. But without crossing the 88.6% retracement keeps open the possibility of a Deep Crab pattern on a significant pullback, to at least 116 on C, which could yield completion of the ABCD over 213. But that is getting ahead of ourselves. There is support lower at 141.1 and 137.75 followed by 127.14. Below that makes a lower low and ends the intermediate term uptrend. So there is significant resistance on all timeframes between the current 147 and 157. Expect a slow slog through it if does. Above that though the targets move out quickly to 177, 213 and 235.
This is the twelfth and final installment in a series of A Long Term View On …. articles.
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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