S&P 500 index and equities markets trend direction interpreted by Andre Gratian

Andre released this update about mid-afternoon; my apologies to readers here, I wasn't able to post it up here until now. Thanks Andre (and readers, you can see info on his Turning Points service at his site listed in the "other sites of interest" at the right side of the page):
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February 16, 2009
Turning Points
By Andre Gratian

A 3-dimensional approach to technical analysis
Cycles - Breadth - Price projections

The SPX has been trading in a narrow range since January 20. The Daily chart best explains why.

The dark-blue lines represent the secondary bear market trend since October 2007. The red line is the primary trend. As you can see, since early October the index has been trading in the lower part of its secondary channel. It has made three attempts to come out of it, all unsuccessful. Last week, it made another attempt at rallying to challenge that mid-channel line again, but it looks as if it was stopped in its early stages. For the index to get back into an uptrend, it would have to move above the dashed line.

There has been support at the blue trend line across the lows which is a parallel to the blue trend line drawn across the tops. Last week is was violated, but held as prices responded to some positive news about a program to help the housing industry which will be unveiled by the president this week.

The combined mid-channel line and the bottom trend line have created a triangle (light blue lines), which is also seen in the MACD histogram, below. This is not bullish! A triangle is usually a continuation pattern and this suggests that if the market does not move above the dashed line quickly to change this pattern, the index will resume its secondary bear market trend which could easily lead to new lows.

The indicators are also stuck in a down channel and look as if they are making a pattern which is much more likely to be completed on the downside than to the upside.

For more details, let's turn to the hourly chart. We can see the light-blue triangle pattern more clearly, here, and we also notice the weakness of the SPX which was not even able to get up to its top line. It was stopped by a parallel of the bottom trend line across the two early December lows which served as resistance to the first move up, at the end of January. The second attempt was even weaker, as it fell short of the resistance at the February 9 top.

Last week, after a false break through the blue trend lines, the index had a sharp rally, but it was stopped by the top line of its very-short term down-trend channel from the last top at 875. The momentum indicator is in the same position as that of the daily. It is having trouble getting out of its down-channel, which also corresponds to the price channel.


For an even more detailed perspective, let's look at the 15-minute chart (above). Last Thursday, the SPX found support on the bottom parallel of a line drawn across the recent tops and had a substantial rally into the close. But the next day, it tried to go through the top of the blue channel twice, and failed both times. If it does, there is a projection above to 852. How likely is it that we reach that projection? Considering the sell-off at the close and after hours, on Friday, not very likely! The down trend line which must be penetrated is currently at 832.

After Friday's close, the current picture is one of a market which is hanging by its fingernails on the edge of a cliff and which made one last effort at pulling itself up, over the edge. We'll find out Tuesday if there is still some sign of bullish life.

Moving to 820 after the close already puts the index at risk of continuing to move lower and, this time, breaking below 810 with no rally. In order to prevent that, it must rally from the very start on Tuesday morning. Dropping below 808, and then 804, would create a first target of 792. The next one is 782, and then 765. Lower targets will be determined if it keeps on going.

For what it's worth, March is not supposed to be good for the market, astrologically!

The sentiment indicator (courtesy of SentimenTrader) is getting more bullish long-term, but is still slightly negative short-term.




Andre


Daily market analysis of the short term trend is reserved for subscribers. If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at ajg@cybertrails.com.

The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.