Here are paths and price levels this bear market rally may trace out in coming weeks

This bear market rally has many wondering, what level will it reach and what path will it take to get there? Here are some good chart guides for the answers. The first chart I'll use is from a source relatively new to me, at http://blogs.stockcharts.com/chartwatchers/2009/04/rally-continues.html (I'm not certain if you need a subscription membership at Stockcharts.com to view the full article and blog there*). However, I do know the specific analyst to be seasoned and smart - it's Carl Swenlin, of DecisionPoint.com. Looks like he is using some of the same trendlines that Andre Gratian, and we, have been looking at in the S&P 500 market. One of Carl's points is that if the S&P 500 can push above the intermediate trendline, then it's reasonable to think it may reach the 1000 area. That's indicated on one of his three charts in that article, the trendline chart which is below. Personally, I see that his 200-day exponential moving average (EMA) is showing 972.90, so that might be another objective if the index doesn't have the "strength" to get to 1000 at this time. At any rate, here's his trendline chart:

(*According to Stockcharts.com: "This blog contains articles from our free bi-monthly newsletter ChartWatchers. Click here if you want to subscribe to the email version of ChartWatchers. All information presented here is for educational purposes only. We do not make buy or sell recommendations.")

Now, it may be that Carl is drawing the lower trendline in that chart using slightly different data points than I had for my chart below; or, that he was marking it off to be parallel to the upper trendline, which is more likely (because I've noticed in my weekly SPX chart that those two lines would not be exactly parallel). Based on these parallels, there may be near-term trendline resistance in the range of 870/860/850. The upper Bollinger Band is also at 868 right now. I also consider the 880/884 level as very important, because it is the area of the .786 retrace level back to the 943.85 high of January 6. I tend to believe that this level will offer stiff resistance to the continuation of this bear market rally leg. Only if the market rises above 886 will it show that higher levels are in sight.

Let me add some comments on the significance of the range traced out by the S&P 500 back in November 2008. After a consolidative range from 839.8 to 1044.31 in late October, it touched the top of the Bollinger Band in early November at 1007.51, then dropped into the 741.02 low on November 21. The 1.272 extension of the range 1007.51 to 741.02 pointed down to 668.59, which the index tested when making its 666.79 low on March 6. There is potential for similar Fibonacci calculations to point the way for the current rally. Some of those are already on my SPX chart, below, in the form of Fibonacci retracement levels. Similar considerations also indicate that we should consider the 1007.51 and 1004.31 levels (the highs formed in October and November 2008) as potential resistance levels. But from the Fibonacci perspective using the closer swing high/swing low points, if the SPX gets above 886, then 1019 and 1050 come into sight.


From the Elliott Wave perspective, you can see that Tony Caldaro is working with the 667 low in the SPX as being the bottom of wave A, and he's looking for wave B up with a potential objective approximately 1100 in this index. The "mainstream" Elliott Wave folks think of it in terms of a first wave down of a huge C-wave down, with the current rally being part of a wave 2. I already discussed the potentials for a wave 2 in a prior post here very recently. They do also allow for an alternative idea, the idea that we're just in a fourth wave of that wave 1 down, with a fifth wave low of that wave 1 still to come. But that is definitely just an alternative that they don't really support. I don't think I can be more specific about the "mainstream" Elliott Wave views, but if you happen to maintain a subscription there you know what I mean. I've learned to take their specific wave counting with a lot of skepticism (which is why I rarely refer to them) although their conceptual ideas tend to be helpful. Clearly, Tony Caldaro also has charted out his own course with his Objective Elliott Wave, and it's Tony's near-term count chart that's below. You can see that his RSI and MACD indicators show some loss of momentum:


Later this weekend, we're going to take it from the intermediate views discussed here, to the much bigger picture and long-range possibilities for the markets. Right now, let's just add the reminder that we saw six weeks up to the January 6 high at 943.85, and then we had two months down into the March 6 low at 666.79. A time symmetry of six weeks would also correspond to the six-week time frame discussed by Raymond Merriman in his public weekly comments (posted here earlier this morning). But that was after a drop from 1044 that took about six weeks too. Well - time doesn't permit me to go into more detail right now, as I also want to start setting up the much bigger-picture discussions of the markets for later this weekend.

Here are the McClellan Oscillator and Summation Index charts that are very similar to the indicators that Carl Swenlin evaluates in his blog article, to derive the same conclusion that we've mentioned here recently - and that also fits in very neatly with Terry Laundry's comments from his T Theory work - that the rally to the levels around SPX 810 have been well supported by pent-up buying volume, but there's less volume-breadth support for the rally to move much higher. That doesn't mean that the markets won't move higher, but just that a move higher won't be as well supported (and more likely to be vulnerable to correction). I'd mentioned in a post here recently that the Nasdaq Summation Index looked like it wanted to get to the zero line, and it looks like it's working on that. I've added some trend lines on top of these charts from DecisionPoint.com: