S&P 500 Overview With Projection

We’ve had a steady rally all last week in the major US equity indexes, but let’s focus on the technical position of the S&P 500 (^GSPC) and view both the daily and weekly charts and note possible projections and confluences.

S&P 500 Daily:

Price is clearly in a daily downtrend with a distinct series of lower lows and lower highs.  The orientation of the key daily moving averages is in the most bearish orientation possible.

However, there is a positive momentum divergence building under the price action, which hints at underlying bullish strength (or the diminishing influence on the part of sellers) which could change (or is currently changing) the price structure of the market.

Price is currently testing and gently breaking above the 20 day EMA, an occurrence which happened in early November that resulted in a price ‘failure test’ of this key average.  Should price hold above this level, the next target would be the falling 50 day EMA which would be just above 950.

Volume plunged during the week as price moved higher, which is a bearish non-confirmation (of higher prices) but also take note that last week was a shortened, holiday trading week so don’t try to read too much into last week’s volume trend.

S&P 500 Weekly:

The weekly chart leaves much to be desired for the bulls.  Price peaked in October 2007 and has steadily fallen since that peak to its current low of 750 in November 2008.  The market has shown clean Elliott Wave patterns, complete with fractal moves in each larger wave, and odds are that we have finished the brutal third wave down and are beginning a fourth-wave corrective (three wave “ABC”) impulse up.  Notice the positive momentum divergence on the weekly chart as we go into this structure.

How far might the fourth wave go (if indeed that is the current structure)?

I ran some Fibonacci confluence numbers and - sparing you all the lines on the chart - the number that seemed to generate the highest confluence was 1,093.

1,063 is roughly the 38.2% retracement from the 1,550 price high to the 750 price low.
1,093 is the 50.% retracement of the 1,440 to 750 price swing which composed Wave 3.
1,096 is the 61.8% retracement from the 1,300 to 750 price swing which took us from the doji at confluence resistance in August 2008 to the most recent price lows.

When working with Fibonacci, it often pays to study ‘confluence price zones’ rather than just a singular Fibonacci grid.  There are even more price grids we can draw that take us further back but be careful not to draw dozens of lines on your charts.

That being said, look for the next move in the market possibly to be an up-move through the end of the year (of course, not straight up, but with smaller waves up and down) that take us into confluence resistance via the 20 week EMA (currently just above 1,050) and the important Fibonacci cluster zone of 1,093.

All things being equal, I will set this as our next target price to reach in the market, if not by year’s end, then slightly beyond.

Of course, this view will be invalidated should price move down and take out the 750 price lows at any time prior to the possible up-move materializing.

We’ll continue to follow these developments day-by-day as they happen.

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