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October 20, 2008

Update of SP 500 Index
by David Petch

Note: The following article was posted for the benefit of subscribers on October 12th, 2008.

Analysis of the S&P 500 Index is presented today, with a slight tweaking of the Elliott Wave count. I have spent a big chunk of time reviewing the $CPC chart posted yesterday, along with the wave structure and am confident the described pattern is what will play out. There is a tradable bottom 1-2 weeks out, but a low should be established by mid to late week. Expect basing for 1-2 weeks before commencing a multi-month rally that should last until March or April 2009 (if the partial retracement is extremely rapid, then late December becomes the target).

Fibonacci time extensions of various waves are shown at the top of the chart, with a cluster of Fib dates occurring on October 16th and 17th, the likely point in time a bottom is put in place. Upper Bollinger bands are still rising, suggestive that a bottom has not yet been put in place. Fibonacci price projections of various waves projected off the termination point of subsequent corrections are shown on the right hand side denoted in red. Notice near the lower portion of the chart two 1.618x Fib price projections between 755-826, the likely area for a market bottom. Short-term stochastics have the %K beneath the %D, with no sign of a bottom yet in place.

Figure 1

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Blue lines on the right hand side represent Fibonacci price retracements of from two different decline points. Notice 50% retracements from October 2007 and May 2008 have 50% retracement levels around 1140 and 1080, respectively. The subsequent bounce after basing over the next 1-2 weeks will take the S&P back up to the 1080-1140 range at a minimum, maybe slightly higher over the course of a 2-4 month run, depending upon market strength. Moving averages are in bearish alignment (200 day MA above the 155 day MA above the 50 day MA), with the 50 day MA acting as support at 1187. The index is likely to test the 50 day MA, maybe even kiss the 200 day MA before declining in the final leg down of the wave c pattern currently underway. Full stochastics have the %K beneath the %D, suggestive that a market bottom could in fact be 3-4 weeks out after a period of basing.

Figure 2

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The weekly semi-log chart of the S&P 500 Index is shown below, with blue lines on the right hand side representing Fibonacci price retracements of the 2000-2003 decline and various other declining wave segments. Red lines on the right hand side represent Fibonacci price projections of a downward trending wave projected off the subsequent termination point. Upper Bollinger bands are still rising, suggestive that not bottom has been put in place. Lower Bollinger bands are well above the present market price, suggestive an extremely oversold condition is in the process of being put in place. Fibonacci time extensions of various waves are shown near the lower portion of the chart, with a cluster of Fib dates occurring in October 2009. Full stochastics have the %K beneath the %D, with at least 2-4 weeks of consolidation before a bottom is put in place.

Figure 3

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The mid-term Elliott Wave chart of the S&P 500 Index is shown below, with the thought pattern forming denoted in green. Purple lines represent the larger Degree wave structure thought to be forming at present that will consume another 10-12 months of time before basing. After the S&P bases between 720-800, expect a sharp multi-month rally to take the index towards 1080-1140 (maybe higher) before topping out. The decline over the course of the past month has been rather sharp, so expect the retracement to take 2-3 times longer at a minimum (think March-April 2009 time frame). Before topping out.

Figure 4

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The long-term Elliott Wave count of the S&P 500 Index is shown below, with the thought pattern forming denoted in green. I modified the count after wave a to reflect the present decline as a separate segment of the same wave structure. Based upon wave b retracing all of wave a, expect wave d to be shorter in time and price.

Figure 5

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The USD as mentioned earlier has another 1-2 weeks of upside before topping out, which will likely coincide with the S&P 500 Index bottoming. The reversal in the USD will be sharp, but expect it to continue to have strength into April/June 2009 before declining. The HUI and XOI related components and juniors as a whole stand to see certain stocks double or triple off the lows and even if this occurs, most will still be significantly off the highs. The coming move up represents the potential to make some quick money, but this must be viewed as a trade, because when a top is put in place come March/April 2009, it will be downhill until this time next year.

I hope that the posts the past few days have been informative and lay some groundwork for how to play the terrible hand we were dealt. At present, there will be a global sea of liquidity that should begin to work its way into the general economy by June 2009, which will begin to slowly feed into raising prices. Make sure accumulation of gold and silver bullion is a monthly regimen, because mark my words, it will be next to impossible to obtain come 18-24 months from now.

David Petch
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