Some Theme’s to Watch in the S&P 500
- Posted by Greg Harmon
- on October 9th, 2013
Tuesday was a big day for many in the market. For some it was a disaster with the high price momentum fliers heading lower. For others the broad market was the focus. The $QQQ and $IWM led to the downside falling faster than the $SPY and $DIA, a reversal. But most were watching the S&P 500 and its crack of the long rising trend support line from November 2012. I was watching the S&P 500 too. You have likely seen that trend line already so lets look at a few other themes to watch for to help determine if this is a small pullback or something bigger.
The first is the Harmonic pattern playing out. The $SPX has run through harmonic after harmonic after harmonic since the November 2012 low. The latest is the reversal on the bearish Shark. Having broken the 61.8% retracement of the pattern, the next target lower is now at 1627.47, a full retracement. This is now a key level.
Looking left on the chart you will notice that there are several Fibonacci levels nestled in that area with the 1626.17 50% level from the 3 Drives pattern and the 1634.46 50% level from the previous Shark very near the 100% level of the current Shark at 1627.41. These also become more important now.
On a more qualitative basis, notice that the last two bottoms have occurred when the price has moved just slightly below the 100 day Simple Moving Average (SMA). About as much as it did Tuesday. The Marubozu candle suggests more downside but you must be cognizant that this is a measure where it has reversed before.
Finally keep an eye on the price relative to the Bollinger bands. The price does not like to stay outside of them for more than a couple of days at a time. The June 24 low saw a sharp reversal to get back within them. This led to the S&P 500 making a new all time high. This does not have to happen again but a sharp move higher would sure gather some buyers.
There are indicators that can be used to point in either direction. These are a few. Don’t try to predict what will happen, but rather react to it, but with as much information as you can be prepared with.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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