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Stock Market Downtrend Targeting Key Support S&P500 at 850

Stock-Markets / Stock Index Trading Jun 19, 2009 - 12:12 AM GMT

By: David_Petch

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThe CPBE Options Equity Put/Call Ratio Index is shown below, with the S&P 500 Index shown in the background in black and accompanying stochastics shown below. For this chart the %K above the %D for a given stochastic is an indication of general weakness in the broad stock market indices, while falling beneath the %D is an indication of general strength. At present, the %K is above the %D, indicating market weakness and was running at a divergence to the S&P 500 Index that was grinding higher.


The S&P 500 Index broke 925 as mentioned last week and is likely to at least take a trip to the 850-870 area…if a summer rally is to occur for July and into August, the S&P must bounce off this region and grind higher, otherwise it could continue to slip lower. Anyone trading this decline should be aware of the above possibilities.

Figure 1

Figure 1 copy.gif

The daily chart of the S&P 500 Index is shown below, with an alternate Elliott Wave count shown below…if this count were to hold true a sharp down leg should initiate anytime (I put a lower degree of confidence into this count, but it is a possibility. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in stochastics 1 and 3. Although it is probable a top has been put in place, the sideways action of stochastics 1 and 2 the past two months requires a definitive breakdown of the %K in order to conclude that a topping pattern is complete. Based upon this chart, this chart has a neutral to slightly negative bias. Anyone shorting should use tight stops in the event the S&P swings higher.

Figure 2

Figure 2 copy.gif

The weekly chart of the S&P 500 Index is shown below, with upper 21 and 34 MA Bollinger bands nearing the index, while the lower 34 MA BB has popped above the 21 MA BB, indicating the mid-term trend is oversold. Full stochastics 1, 2 and 3 are shown below in order of descent, with the %K above the %D in all three instances. The weekly chart remains positive, although it should be pointed out adding to long positions at this juncture is not recommended. The %K in stochastic 1 is near the top of the range, while it has yet to cross above the 50 level in stochastic 2.

My read on this pattern is that the S&P is in a decline sequence and has the potential to turn higher…but it could keep on trucking south if market conditions fall apart, thereby causing a sharp reversal in stochastic patterns. Major declines have been associated with the %K of stochastic 1 falling beneath the %D, so it is probable the S&P continues to put in a topping pattern for another 1-2 weeks. I want to stress that this thought is based upon stochastic positioning and if the %K in stochastic 1 immediately curls down, then chances are a top has been put in place.

Figure 3

Figure 3 copy.gif

The monthly chart of the S&P 500 Index is shown below, with all stochastics falling beneath the index, while upper Bollinger bands continue to drift higher, suggestive that a bottom has yet to be put in place. Full stochastics, 1, 2 and 3 are shown below in order of descent, with the %K beneath the %D in all three instances. Based upon positioning of the %K in stochastics 2 and 3, a bottom in the S&P should not be expected until late 2009/early 2010.

Figure 4

Figure 4 copy.gif

The short-term Elliott Wave count of the S&P 500 Index is shown below. Wave v completed and the S&P either has put in a top and is heading lower over the course of the next few months; or it finds a bottom somewhere between 850-870 and manages to swing up one move time into late summer before topping out. Due to the complexity of the chart below, there are a few other ways to label the pattern if an extension does occur, so I have avoided adding any other labels below Minor Degree (pink) to prevent any confusion. Based upon this chart, the S&P should head below 900 over the course of the next 5-7 trading days.

Figure 5

Figure 5 copy.gif

The mid-term Elliott Wave count of the S&P 500 Index is shown below, with the thought pattern forming denoted in green (added a few months ago). If the pattern does play out, then a decline to 850-870 should occur, followed by a reversal to at least retest the 950 area. It is important to note that failure for the 850 level to hold will imply further downside in the index.

Figure 6

Figure 6 copy.gif

The long-term Elliott Wave count of the S&P 500 Index is shown below, with the thought pattern forming denoted in green. Whenever the pattern is complete, expect the S&P to head lower.

Figure 7

Figure 7 copy.gif

That is all for today…back tomorrow AM.

By David Petch

http://www.treasurechests.info

I generally try to write at least one editorial per week, although typically not as long as this one. At www.treasurechests.info , once per week (with updates if required), I track the Amex Gold BUGS Index, AMEX Oil Index, US Dollar Index, 10 Year US Treasury Index and the S&P 500 Index using various forms of technical analysis, including Elliott Wave. Captain Hook the site proprietor writes 2-3 articles per week on the “big picture” by tying in recent market action with numerous index ratios, money supply, COT positions etc. We also cover some 60 plus stocks in the precious metals, energy and base metals categories (with a focus on stocks around our provinces).

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Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Comments within the text should not be construed as specific recommendations to buy or sell securities. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities as we are not registered brokers or advisors. Certain statements included herein may constitute "forward-looking statements" with the meaning of certain securities legislative measures. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the above mentioned companies, and / or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Do your own due diligence.

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