Another week of gains on fairly decent volume is continuing the push into the upper boundary of resistance cited in my May 10th technical update. I noted S&P 1075 as a potential level of resistance as it marked the "point of recognition" back in September of '08. 1075 was a very obvious level of support at the time as it marked a number of long-term moving averages and trendlines. The S&P closed the previous week around 1100 and gapped lower the following Monday to about 1060. Price has only returned to fill that gap now, a year later. I find that gap fills are particularly useful targets when used in conjunction with the Elliott Wave rule of price returning to the wave (4) of 3 of a lower degree - which has already been achieved on the S&P, while the Dow appears to be satisfying both targets at the moment. If price were to reverse from these levels, I would have more conviction that the Elliott Wave consensus of a Primary Wave 2 is the correct marking for this rally - which would be disastrous for stocks over the next 2 years.
Today, I will show 3 separate time frames of the S&P, as I think it is important that readers see how using the separate intervals can also increase one's conviction if they are to all align nicely in forming a hypothesis. The first chart below is of the daily. One can see that the 200 day moving average (green line) may not prove useful in terms of forming a price target. Price often slices through this line. However, it can prove useful if used another way. One can calculate the distance from the moving average and use that as an oscillator. The further away from the line, the more "pull" it should exert on bringing price back within its grasp. Back in March, we were at historic distances from this line. Today, we stand 20% above the line. (note: I typically use exponential moving averages, but for the purposes of this indicator, I've used the simple MA).
Next chart is of the weekly timeframe. In using moving averages, it is important to note that certain averages tend to be more "in play" than others. If price has often reacted from a certain average in the past, it is more likely to do so in the future. If an average acts as support in an uptrend, it will likely act as resistance on an ensuing downtrend. Such is the case with the 100 week EMA. Going back nearly a decade, we can see numerous instances of fairly major intermediate tops or bottoms occurring from this line. See the pink line below. We have returned to that line as of 1075. If it acts as resistance here again, I would have high confidence that a major top was in.
Lastly, we will look at the monthly chart. One can see how the RSI on this chart was at historic oversold readings. It has now recovered to the midpoint, which typically serves as resistance in a secular bear market as it does support in a secular bull. However, so long as it resides under 60, we can say that the bear lives on - which could give it considerable upside should it choose to drag on for another 2 months or so. Additionally, notice how the current level has acted as support and resistance numerous times over the past 12 years. 1075 appears to be somewhat of a bear market pivot if the bear is looked at to have begun at the 2000 top.
That's all for now!
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