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S&P 500, final push up to complete major top....

Wed, Oct 28 2009, 06:53 GMT
by David Solin

FXA

No change in the view in the s&p 500 as the market continues to form a large rising wedge since last March. These are seen as reversal patterns that resolve sharply lower, and suggests an eventual downside resolution of the base. However, there is scope for a final upleg back to last week’s high at 1101.52 and even the 1115/25 area first, where lots of important, longer term resistance all meet (including the bearish trendline and 50% retracement from the Oct 2007 high at 1576, as well as the ceiling of the wedge since March, see “ideal” scenario in red on daily chart below). Also as mentioned a number of times in the past, markets have a way of reaching these important levels one way or another, and adds weight to the view of a final push to new highs. So for now if shorter term, would buy here (currently at 1065), for the 1101 high and even above. Initially stop on a close below the base of the wedge (currently at 1047/50) as it would greatly increase the likelihood that a more important top is already in place. Also given the potential that gains above 1101 will be limited, will want to trail stops higher with the market, getting especially aggressive on a move to new highs.

Longer term, the 5 wave fall from the Oct 2007 high at 1576 suggests that the bigger picture downside is not “complete” and with eventual declines back to the March low at 667 and below. With the rising wedge (see above), there is potential that the whole correction since March is complete. However, as discussed for a number of months, the market is likely within an extended period of wide ranging and leaves open some scope for at least another 6-9 months of wide chopping/consolidating (large moves on a % basis), before the new lows are seen. In either case, an important top is seen close (see “ideal” scenario in red on weekly chart/2nd chart below) and for now, will switch the longer term bias to the negative side on a move above the 1101 high or on a daily close below the base of the wedge.

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Published on  Wed, Oct 28 2009, 07:33 GMT