The ABC Of The S&P 500

Here’s a summary of where we currently sit on the S&P 500 (^GSPC) Index as of yesterdays 4pm close, which was 870.74.  This morning the futures are up to 873 or so.  Not much of an overnight move.   The Asian indexes are sitting right below a breakout point.  I believe that they are taking a cue from the US markets.  If the US Markets break out this morning above SPX 896.25 level, then I think we could be in for a solid rally that could possibly take us up as high as 1050- 1200 on the SP500.

One of the “trading Gurus” that I listen to is Tom O’brien.  He has a syndicated daily talk show on TFNN.com I listen to him on a regular basis.  When I was working at Merrill, I used to listen to him on AM radio on the drive home.  He does a daily market recap, all of which are posted on Apple Itunes (podcasts).  They are great.  Informative - entertaining etc.  I’ve really come to enjoy Tom and his guests’ perspectives and outlooks on the market.  He’s one of the individuals that I truly respect and listen to on a regular basis.    Tom has been suggesting that we could be in the midst of making a lot of A-B-C ups.

Tom is the “Master” of this structure.  You need to check him out to get all the details, but this explanation will give you the gist of it.  He suggests that the ABC structure is currently visible all over.  Many stocks currently are exhibiting this setup.

Once the “B” point is broken than the c-d leg can begin.  This can result in large gains  A:B=C:D. I would suggest that this setup could be something to watch.  He also closely watches volume. The retracement from B to C should be on lighter volume and cannot exceed 61.8% of the initial A to B move up.  They’re simple rules.

You can see the ABC structure forming on the SPY (SPY) below.  A break above 90.13 on the SPY would validate the SPY - ABC structure and could setup for a run to 97 or 98.  Sometimes you can get an expansion on the C:D leg.  When this happens, the C:D leg will expand to 1.618x the A:B leg.  This would be a solid move.

A break above 896.25 would have us headed for 1067 on the SP500

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