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September 16, 2005

Update of the S&P 500 Index
by David Petch

All of the green lines represent multiple Fibonacci price extensions of the pattern. Darker lines represent Fib clusters, suggesting important support/resistance levels. The next level of heavy Fib resistance is at 1260. The Elliott Wave count for the S&P has a rise calculated to 1300-1340 by the end of October to mid-November. If this does not occur, then refer to the blue trend lines forming a rising wedge. The S&P could continue to narrow within the defined area of the blue wedge until March/May 2006. I am anticipating a breakout above the upper blue trend line in the coming weeks, but these are the two patterns presenting themselves currently. The short-term stochastics had the %K curl down, suggestive further weakness in the S&P lies ahead. Support levels for the current decline are mentioned in Figure 4. The Bollinger bands are in a consolidation pattern; the upper Bollinger bands are drifting sideways while the lower BB's are rising in a ribbon pattern to complete the consolidation pattern.

Figure 1

Fibonacci price extensions based upon the consolidation that occurred for most of 2004 are shown on the right hand side. Interestingly, the same sort of Fib channel based upon the decline from 2000 until March 2003 is seen, with totally different reference points. Failure for the Fib retracements to hold 1215 will see strong support at 1211. Blue trend lines are drawn from various visible intersections; crossover points of lines indicate potential tops or bottoms. Two crossover points ahead of the current index date suggest a turning point (likely to the upside). Full stochastics are on a long-term setting, with the %K recently bouncing of the %D. The uptrend in the S&P faces resistance with a gently declining trend line of the full stochastics. A horizontal red line drawn across the base of the %D line shows important support for the continued up move in the S&P. The moving averages are in bullish alignment (50 day MA above the 155 day MA above the 200 day MA). This chart has a bullish overtone for the S&P to continue rising/ going sideways as per the other chart after a bottom is hit to Fib levels suggested in Figure 4.

Figure 2

The weekly S&P 500 Index is shown below, with Fibonacci retracements of the decline from 2000 until March 2003 shown on the right hand side and Fib time extensions shown at the base of the chart. The Fib lines show the index has been moving in Fib channels since late 2003. The next Fib time extension lies on April 28, 2007. This will likely represent a turn date for an S&P bottom after the index tops out at some point in the coming months. The full stochastics have a wedge pattern forming since late 2002. The termination point of the stochastic wedge matches that closely of the index wedges, suggesting the market harmonics are tuned to the setting below. Late October, or sideways until the first quarter of 2006......the market will decide so until a clear signal is given, give thought to both possibilities. Shorting the S&P could be an expensive proposition at this point in time.

Figure 3

The short-term Elliott Wave count of the S&P is shown below. The index recently completed an impulsive move, which is likely to be retraced to the green circle. A bottom is likely to occur in the next 2-4 trading days, pending how things work out.

Figure 4

The mid-term Elliott Wave count of the S&P is shown below. An expanding triangle is labeled for wave [w], and intermediary X-wave. As mentioned in Figure 4, important Fib support lies at 1217. If 1215 is taken out, the next Fib support lies at 1211 as per Figure 2. A break below 1205 could have bearish implications at this juncture, since it would suggest a flat pattern completed from its initiation point in early July. The 1211 area also has trend line support (not shown).

Figure 5

Again, I must stress how important 1215 is for maintaining the labeling scheme shown. If 1211 is hit, then it is implying the S&P will grind higher into the first quarter of 2006. The target levels hit in the coming week will define market action for the next 6 months, so an important juncture is at hand.

David Petch
TreasureChests.info

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