September 02 2010
LET'S LOOK AT THE S&P 500 DAILY CHART
Two weeks ago I said the key cycle was 60 days from low on the 1st of September and if the index came down to that date at the price of 1040 that would be a low for at least a rally of 30 days into the first of October. The only caveat was if the index went back up to test the high of the 17th. If that occurred it would have created a larger distribution pattern and the support at 1040 would not have held. But the index moved down without that test so the 1040 low would hold. On a cycle basis the low was 60 days from low and 30 point up from low for a squaring of price and time. It was also 120 days from high and 180 points down from high and a second squaring of price and time. On the basis of those cycles this rally should run up a minimum of 30 days to around the first of October (plus minus 2 days).
There is resistance at 1100 (90 points up from low) and at the lower double top around 1130. I would assume this 30 day rally could be exhaustive so the price I'm not sure of yet. Could be 1146 on October first or maybe 1290.
LET'S LOOK AT THE WEEKLY CHART AND RANGE OF THE BEAR TREND
The significant aspect on this chart is the fact that the index held a 3/8 retracement. As we've noted for the past few months a 3/8 retracement in almost all markets holds the trend intact. Even if you look at that retracement on an intraday 5 minute chart that is the retracement that keeps the trend intact. Our assessment was this index may not have sufficient time "on the side" for distribution to allow for a bear trend yet. One must allow for distribution before a trend change as I've highlighted at the 2007 top. The previous highlighted top was a 5 point broadening top and that is possible in this instance and would call for a marginal new high. A broadening top establishing a high and low follow by a higher high and lower low and a final higher high for a "false break" top around 1234. Other than a broadening top the resistance levels are the 50% mark around 1121, then 1150. A full on new leg up could go as high as 1290 or 1360 but that doesn't seem probable now. The next CNBC report in 2 weeks Friday I give a price forecast.
Since computer program trading or high frequency trading is now 2/3 of the NYSE volume and the result are days the show 90% of breadth and volume in one direction. The distorts the strength of daily movements so I'll need another few days to determine the real strength of the move up and if a new high is possible to complete a broadening pattern or if this is going to shown another lower high. But I do feel confident the index will be up for the next 30 days as we had forecast.