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Saturday, October 03, 2009 9:56:45 PM
Amateur Investors Weekend Market Analysis (10/3/09)
http://www.amateur-investor.net/Weekend_Market_Analysis_Oct_3_09.htm
Some selling pressure has developed in the market after seeing a substantial oversold rally from mid March through late September. On a daily chart the S&P 500 is at a key support level near 1020 which is at its 50 Day EMA (blue line) and upward trend line (black line) connecting the March low with the July low. A solid drop below the 1020 level would signal a potential change in longer term direction for the S&P 500 which has been in an up trend since the March low.
In the longer term there are two possible scenario's that may develop. The first scenario is that the move from 667 to 1080 (+62%) in the S&P 500 is a completed ABC oversold rally which was preceded by a 5 Wave move down from October 2007 through mid March of 2009 in which the S&P 500 lost 58% of its value.
The current chart of the S&P 500 looks similar to that of the 1937-1938 time period as shown below. Notice from early 1937 through early 1938 the S&P 500 completed a 5 Wave pattern to the downside in which it lost 55% of its value. This was then followed by an ABC corrective rally in which the S&P 500 gained 62% in basically 8 months. Meanwhile after peaking in late 1938 the S&P 500 then trended lower over the next 3 1/2 years (points C to D) before bottoming in early 1942 after falling 45%.
The second scenario is a more bullish one as the entire move from 667 to 1080 could be just Wave A of a longer term ABC corrective rally which will be followed by a Wave B pullback before the final C Wave occurs. Typically a Wave B can retrace anywhere from 38.2% to 61.8% of the length of Wave A so that would lead to a range of 922 to 825 for Wave B. At this point the 869 level which was the July low (point b) looks like a key support level which is very close to the 50% Retrace of 873. Thus if the more bullish scenario were to develop I would expect Wave B to find support at or above the 869 level which would then be followed by Wave C at some point in the future.
An example of this pattern would be from the early to mid 1970's. In the chart below the S&P 500 lost 48% of its value from 1973 through late 1974 as it exhibited a 5 Wave pattern to the downside. This was then followed by a corrective ABC rally in which Wave A initially gained 48% before undergoing a Wave B pullback of 14% to its 38.2% Retrace. This was then followed by Wave C in which the S&P 500 gained an additional 30%. Thus the total gain from the late 1974 through late 1976 was just over 70%.
At this time it's not clear which one of these patterns may develop in the longer term however further upside or downside in the US Dollar (USD) may determine the outcome. As we have seen during the past few years the S&P 500 and USD have been generally trending in opposite directions. When the USD has rallied (points A to B) the S&P 500 has fallen (points C to D) and when the USD has come under selling pressure (points B to A) the S&P 500 has rallied (points D to C).
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to the following products.
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's and SPY's.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account.
3. The "End of Month Strategy". This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy.
http://www.amateur-investor.net/Weekend_Market_Analysis_Oct_3_09.htm
Some selling pressure has developed in the market after seeing a substantial oversold rally from mid March through late September. On a daily chart the S&P 500 is at a key support level near 1020 which is at its 50 Day EMA (blue line) and upward trend line (black line) connecting the March low with the July low. A solid drop below the 1020 level would signal a potential change in longer term direction for the S&P 500 which has been in an up trend since the March low.
In the longer term there are two possible scenario's that may develop. The first scenario is that the move from 667 to 1080 (+62%) in the S&P 500 is a completed ABC oversold rally which was preceded by a 5 Wave move down from October 2007 through mid March of 2009 in which the S&P 500 lost 58% of its value.
The current chart of the S&P 500 looks similar to that of the 1937-1938 time period as shown below. Notice from early 1937 through early 1938 the S&P 500 completed a 5 Wave pattern to the downside in which it lost 55% of its value. This was then followed by an ABC corrective rally in which the S&P 500 gained 62% in basically 8 months. Meanwhile after peaking in late 1938 the S&P 500 then trended lower over the next 3 1/2 years (points C to D) before bottoming in early 1942 after falling 45%.
The second scenario is a more bullish one as the entire move from 667 to 1080 could be just Wave A of a longer term ABC corrective rally which will be followed by a Wave B pullback before the final C Wave occurs. Typically a Wave B can retrace anywhere from 38.2% to 61.8% of the length of Wave A so that would lead to a range of 922 to 825 for Wave B. At this point the 869 level which was the July low (point b) looks like a key support level which is very close to the 50% Retrace of 873. Thus if the more bullish scenario were to develop I would expect Wave B to find support at or above the 869 level which would then be followed by Wave C at some point in the future.
An example of this pattern would be from the early to mid 1970's. In the chart below the S&P 500 lost 48% of its value from 1973 through late 1974 as it exhibited a 5 Wave pattern to the downside. This was then followed by a corrective ABC rally in which Wave A initially gained 48% before undergoing a Wave B pullback of 14% to its 38.2% Retrace. This was then followed by Wave C in which the S&P 500 gained an additional 30%. Thus the total gain from the late 1974 through late 1976 was just over 70%.
At this time it's not clear which one of these patterns may develop in the longer term however further upside or downside in the US Dollar (USD) may determine the outcome. As we have seen during the past few years the S&P 500 and USD have been generally trending in opposite directions. When the USD has rallied (points A to B) the S&P 500 has fallen (points C to D) and when the USD has come under selling pressure (points B to A) the S&P 500 has rallied (points D to C).
Signup for a "Free 4 Week Trial Membership" or save up to 50% on a Premium Membership and you will have access to the following products.
1. "ETF Daily Buy and Short Signals" which can be used to trade the DIA's, QQQQ's and SPY's.
2. "401K/Thrift Savings Plan (TSP) Timing Service" which can be used to help improve your return in your 401k/TSP Account.
3. The "End of Month Strategy". This Strategy focuses on the typical End of Month markup by the Institutional Money.
4. "Stocks to Buy List" which can be used with either our Short Term Strategy or Long Term Strategy.
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