Dow, S&P500, Nasdaq still bullish

DJIA ? Heading for 2009 high (bullish)
S&P500 ? Heading for 1035 resistance (bullish)
NASDAQ ? Strong rebound at 6-month uptrend line (bullish)

Dow Jones Industrial Average (DJIA) ? Heading for 2009 high

Retesting 2009 high: The index could be heading back up to re-test the 9628 level (2009 high) in the days ahead after rebounding strongly last week.

Bearish divergences: However, with the RSI and MACD indicator still signaling a bearish divergence to the price action in the last 1 month, the 2009 high could prove too strong an obstacle to overcome.

S&P500 ? Heading for 1035 resistance

More upside in the days ahead: After breaking above the key 1000 level, we could see the index heading towards the 1035 resistance in the days ahead.

Warning signs from indicators: However, with both the RSI and MACD indicators showing bearish divergence to the price action currently, the index could potentially be heading for another significant correction if it fails to conquer the 1035 resistance.

NASDAQ ? Strong rebound at 6-month uptrend line

Heading for 2009 high: With the index rebounding strongly from the 6-month uptrend line, we could see further upside in the coming week towards the 2060 resistance (2009 high).

Beware of bearish divergence signals:With both the RSI and MACD indicator already showing bearish divergence to the price action, it pays to be cautious as the index look to re-test the 2009 in the days ahead.

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Nasdaq and S&P500 hard to clear the resistance - tone turn bearish

NASDAQ - 2000 key resistance proved too tough to clear

Further correction likely: The continued failure to stay above the key 2000 resistance level could see the index heading lower still in the coming week.

Indicators showing bearish signals:With the RSI on the verge of falling out from the overbought level and the MACD initiating a bearish crossover last week, they also suggest that the downside momentum is building up.


S&P500 - Hovering at key 1000 level

Hovering at 1000 key level: The index is currently hovering at the 1000 key level and it could still break either way.

Technical indicators favor correction:But with both the RSI and MACD indicators looking to head lower, the risk is to the downside.


Dow Jones Industrial Average (DJIA) - Tone has turned bearish

A tall order to reach for the 9652 resistance:After maintaining above the 9000 key support successfully, the index may struggle to reach the next resistance at 9652.

Technical readings point bearish divergence:This as the RSI has shown a bearish divergence to the price over the last 3 weeks and the MACD indicator are showing signs of a bearish reversal, both suggesting that the tone is starting to turn bearish for the index.

Dow and S&P500 - Still some room for further gains

Dow Jones Industrial Average: Still some room for further gains

Increasing by more than 600 points since early Jul 09. Wave 4 within the Dow Jones Industrial Average (INDU Index) may have ended sooner than we thought as the index continues to rebound off its low at 8,087. With the candlesticks depicting successive higher highs and higher lows which indicate that the trend is positive, we believe that the current Wave 5 could still push the index up even further.

Trading opportunities are present. The various technical indicators are also looking bullish. The MACD chart has just produced a centreline crossover while the bollinger bands have started expanding, signifying that the bullish trend has further room to go. Short-term investors are recommended to ride on this uptrend before the Dow meets with its resistance.

Resistance is outlined at the 9,155 – 9,159 range where a series of daily highs are situated. On the other hand, immediate support is located at the 8,363 – 8,392 area where the 14 and 21-day moving averages reside. South of that, stronger support at the 8,076 – 8,093 region is available to cap any further downside pressures.

S&P 500 Index: Trading outlook is similar to that of the Dow

As with the Dow, we have also revised our Wave Count for the S&P 500 (SPX Index) and we now believe that the current Wave 5 coupled with the string of higher highs and higher lows in its candlesticks should propel the S&P higher. The expanding bollinger bands and the centreline crossover within the MACD chart are similarly signaling that the underlying trend is bullish.

Key levels to note. Resistance is seen at the 1,001 – 1,007 area where a series of daily highs are situated. Meanwhile, immediate support is identified at the 905 – 910 range where a technical gap and the 14 & 21-day moving averages converge. Stronger support is also available at the 870 – 875 region as represented by the lower bollinger band and the 200-day moving average.

Dow and S&P500 both bearish trend

Dow Jones Industrial Average: Trend is bearish but support is just around the corner

The Dow Jones Industrial Average (INDU Index) performed against our expectations and broke below our quoted support level at 8,213. While this also resultantly means that our forecasted 5-Wave Triangle consolidation pattern is no longer at play and that further downside should be forthcoming for the Dow as it rides on the current Wave 4, note that support which is just around the corner from present levels should serve to cap any additional downside. The bearish centreline crossover within the MACD chart is also painting a negative picture for the Dow.

Support at the 7,987 – 7,995 area is expected to be robust, as this is where the 61.8% fibonacci retracement of Wave 3 is seen. Furthermore, the 100-day moving average also resides in this region – we therefore expect this level to hold up against any further downside pressures. Resistance, on the other hand, is available at the 8,560 – 8,580 area where a series of daily highs are identified. Aggressive traders may try to buy a bounce off the support level to engage in some scalping.


S&P 500 Index: Further room to fall as compared to the Dow

More bearish than the Dow. Similar to the Dow, the 5-Wave Triangle Pattern that we have previously forecasted for the S&P 500 (SPX Index) is now invalid after price action during the previous week performed against our expectations. Note that, however, while the current Wave 4 is also expected to pull the S&P down, support to cap the potential bearishness is not available in the nearby vicinity as opposed to the Dow. The 14-day ADX that is moving upwards also signifies that the downtrend is picking up steam.

The S&P may continue to lose ground until the 847 – 851 support area where the 61.8% fibonacci retracement of Wave 3 and 100-day moving average is situated. Initial resistance, on the other hand, is seen at the 898 level where a series of daily highs are seen. Additional resistance is also available at the 927 – 931 range where another series of daily highs reside.

Dow and S&P500 technical chart view

Dow Jones Industrial Average: Consolidation expected by virtue of triangle formation

Performing as anticipated. We have previously wrote that we were expecting Wave 4 to drag the Dow Jones Industrial Average (INDU Index) to lower ground with support seen at the 8,165 – 8,246. Our forecasts turned out to be rather inline, given that the index lost more than 4% in a fortnight and attained a trading low of 8,259 which was just slightly above our support level.

Range trading expected. However, given the muted participation as evidenced by the decline in trading volume during the 361-point retreat in the Dow for the last two weeks, we believe that a 5-Wave Triangle pattern within the present Wave 4 is in the making. This indicates that the Dow may consolidate, further evidenced by the bollinger bands that have stopped expanding.

Key levels to note. The Dow is forecasted to bounce within the quoted resistance and support levels with its trading range expected to contract further in the short-term. Resistance is identified at the 8,877 – 8,928 area, courtesy of the 100% fibonacci extension of Wave 1 and the upper bollinger band. On the other hand, support is positioned at the 8,221 – 8,259 region by virtue of the lower bollinger band and a series of daily lows.


S&P 500 Index: Range trading expected

Expected to turn in a performance similar to the Dow. We have previously mentioned that the move above the 100% fibonacci extension of Wave 1 at the 945 mark by the S&P 500 (SPX Index) had represented a false breakout as the latter eventually lost 28 points in a span of two weeks. We had also written that the S&P is expected to resume its usual trend of trading inline with the Dow – this view remains.

Consolidation in the pipeline. The 5-Wave Triangle pattern seen in the Dow is also expected to occur for the S&P as well while the bollinger bands similarly cease expansion. With the S&P forecasted to consolidate, resistance is identified at the 956 – 960 area as represented by the tip of Wave 3 and the upper bollinger band. Meanwhile, support is located at the 888 – 892 range as outlined by the lower bollinger band.

S&P 500 ‘Golden Cross’ Signals Stock Gains

The Standard & Poor’s 500 Index is poised to extend its 32 percent rally from a 12-year low in March, according to a technical indicator called the “golden cross” that’s considered a bullish signal by analysts who make predictions based on patterns in price charts.

The 50-day moving average for the S&P 500 exceeded its average price for the prior 200 days yesterday for the first time since December 2007. A 50-day average moving higher than a 200-day average is termed a “golden cross” by technical analysts. Read full article at http://www.bloomberg.com/apps/news?pid=20601110&sid=acVLQrcQI664

World wide technical index + Asean

Crunch time. This week promises to be crucial for global equity markets. The hourly chart for the S&P500 shows a triangle breakout a few days back, with the index reaching a weekly high of 956 before pulling back.

Peak or start of a major upleg? The 956pt week’s high could be the end of wave “a” which started when the S&P500 hit 667pts in early Mar. This is a gain of more than 43% in less than four months. A break below the crucial 927 support next week would confirm that 956 was a major peak for the S&P.

Bullish outlook also possible. However, the recent rally from 927 to 956 over the past few days could also be wave (i) of 5, which would mean more upside for the index in the next few weeks. Confirmation if S&P 500 breaks above 956 high.

Potential US$ rebound still valid. The Dollar Index’s rebound remains valid unless it goes below the early Jun 78.3 low. Last week, we highlighted the potential for a US$ rebound. The Dollar Index reached as high as 81.5pts early last week before pulling back and finding support at the trend line.

Great Wall cracking? The mighty China equity market showed signs of cracking towards the end of last week. The Shanghai Composite Index has been trading in an uptrend channel since Mar and the key support trend line for this week is 2,650-2,660. This support level must hold or a more meaningful correction might kick in the next few weeks.

Asian markets go sideways after hitting resistance. Since early Jun, after hitting the crucial 401pt 38.2% Fibonacci retracement (FR) of the 689-223 decline in 2007-08, the MSCI Asia ex-Japan (MAxJ) has been trading sideways. Its daily MACD and RSI technical indicators are showing strong negative divergence and probability favours consolidation ahead. The main support trend lines for the MAxJ are at 388 and 368pts. A break below 368pts would probably confirm a more meaningful consolidation ahead.

But bullish if MAxJ rallies. We would, however, turn bullish on Asia if the MAxJ took out its 405 Jun high in the coming weeks. This would indicate that the consolidation since early Jun has ended in a “flat formation” pattern.

ASEAN

Uptrend still relatively intact Stock markets ended the week mixed but with a positive bias, as economic indicators were still supportive of equities. Regional equities indices were up 1-4% with the exception of the FSSTI, which lost 0.8%. Value traded was on the weaker side compared to a week ago. US equities meanwhile closed the week up by no more than 1%.

Bull cycle evolution As the extended bottoming process equities gives way to what most cautiously perceive as a bull market, an examination of the evolution of the bull cycle valuations becomes more relevant. This is especially given that equities have been on a tear since March. Are things looking expensive relative to the previous experience, which we take as the 2003-2007 upcycle?

P/Es make quick gains The forward P/E valuations for all markets are bouncing off troughs from a higher starting point in this current cycle, and registering steeper gains as well. Within three months or so, the JCI has managed to claw its way back to mid-cycle P/E valuations. But the problem lies in the EPS projections – it has yet to catch up unlike its ASEAN peers. Its three ASEAN neighbours are still trading below mid-cycle P/Es, with better forecast 2010 EPS growth compared to the EPS CAGR throughout the full bull cycle of 2003-07.

P/BV more reasonable The P/BV looks a little less demanding, despite the pace of gains. As steep as the climb had been, all remain below their mid-cycle levels. The forward ROE trends look favourable for the KLCI and FSSTI, but flattish for the smaller JCI and SET markets. There is less of an urgency to see upgrades for the SET as its corresponding P/BV is still reasonable. However, the JCI again raises eyebrows, trading at closest to its mid-cycle P/BV when ROEs are still stubbornly stagnant. This is one market that needs some good news on the earnings front soon.

Technical Analysis on Global Indexes

Straits Times Index: Appearing toppish, now targeting 2,220

No longer bullish. Elliot Wave Count on the Straits Times Index (FSSTI Index) highly suggests that Wave 5 has been completed when the index hit a high of 2,424 as it is matching Wave 1 with utmost precision ( Elliot Wave principle suggests that Waves 5 usually travel the 100% of Waves 1 ). Furthermore, with the 14-day RSI still remaining in overbought territory, we do not recommend investors to engage in long positions at present levels.

The long-awaited correction could occur very soon, as the current Wave A is expected to translate into losses for the STI. Nevertheless, there is also the possibility that the STI could first enter a consolidation period before staging a move lower, as markets do not always move in a straight line. Initial support is identified at the 2,220 – 2,234 level, as outlined by the 61.8% fibonacci retracement of Wave 5 and a series of daily lows. Further support is also seen at the 2,094 mark where the 100% fibonacci retracement of Wave 5 and the lower bollinger band converge.

Meanwhile, although we do not foresee resistance at the 2,424 – 2,433 level to give way, additional resistance is nonetheless available at the 2,605 – 2,622 zone. This level signifies the 161.8% fibonacci extension of Wave 1 and a certain technical gap.

Shanghai Composite Index: Approaching inflexion point, trend to turn bearish

Bullish trend was inline with expectations. Price action of the Shanghai Composite Index (SHCOMP Index) was bullish as we had forecasted but overshot our target of 2,743. However, the current breakout move arising from the Symmetrical Triangle formation seems to have hit exhaustion while Wave Count suggests that Wave A may be kicking in very soon. We thus are no longer bullish on the index.

Reaching inflexion point. As Waves 5 usually travel the entire price length of Waves 1, the index may have already seen the completion of Wave 5 when it hit a high of 2,791 which is very close to its target at 2,808 ( Wave 1 = Wave 5 = 2100 – 1664 + 2372 ). Coupled with the 14-day RSI trading very close to overbought levels, we do not expect the index to break through this resistance mark. Nevertheless, should it occur otherwise, its next level of resistance is seen at around the 3,071 mark as represented by the 161.8% fibonacci extension of Wave 1 – the next most likely target for Waves 5.

Pullback to occur, initial price target at around 2,650. The impending downtrend in the form of Wave A should encounter its first support at the 2,635 – 2,668 area where a technical gap resides. Should this level fail to hold, additional support is identified at the 2,536 – 2,539 range as represented by the 61.8% fibonacci retracement of Wave 5 and the lower bollinger band.

Dow Jones Industrial Average: Resistance just around the corner, bullishness to subside

Current Wave 3 may end soon. We have broken down our Wave Count for the Dow Jones Industrial Average (INDU Index) into sub-waves and we now reckon that the index is presently riding on a Wave 3. With the 100% extension move of Waves 1 being one of the price targets for Waves 3, it is highly probable that the Dow may have limited upside left in the short term, given that resistance is just around the corner.

Should Wave 3 travel the 100% move of Wave 1, initial resistance is identified at 8,899 ( 7931 – 6469 + 7437 ). Given that the MACD chart is looking flat, however, we do not expect this level to be broken. Nevertheless, should events happen otherwise, the next resistance should beseen at the around the 9,794 – 9,803 area. This level represents the 161.8% fibonacci extension of Wave 1 and a certain daily high.

Should the index fail to take out the 8,899 mark as we have anticipated, price action could then turn bearish resultantly. Support, located at the 8,156 – 8,246 range as identified by the 50- day moving average, the lower bollinger band and a series of daily lows, would be expected to cap any downside pressures.

S&P 500 Index: An impending turnaround

As with the Dow, the S&P 500 (SPX Index) has also been broken down into sub-waves. While its Wave Count may be similar to that of its counterpart, note that the S&P could have already over-extended its run as its current Wave 3 has traveled slightly more than the 100% of Wave 1. Coupled with the flattening 14-day ADX which signals that the present trend is no longer gaining strength, it is thus possible that the S&P may turn down anytime soon.
Resistance just ahead. Initial resistance is situated at the 951 mark, courtesy of the end of Wave 3 and the upper bollinger band. Should price action appreciate above this level, further resistance is then available at the 1,044 – 1,047 region as represented by the 161.8% fibonacci extension of Wave 1 and a certain daily high. On the other hand, should the index turn bearish from present levels as we had forecast, support at the 878 – 881 area as outlined by a series of daily lows should serve to prevent any further declines.

Hang Seng Index: Not looking bullish

Not looking positive. The Hang Seng Index (HSI Index) has seemingly completed 5 waves up while the impending 3 waves down is expected to drag the index down to lower levels. With the present Wave A still in its infancy stage, we recommend investors to cash out before any additional downside unfolds. The MACD chart that is currently flattening out also signals that the HSI is no longer bullish.

Initial price target at 17,340. The present Wave A is expected to pull the HSI to the 17,340 – 17,347 support zone at the very least. Should this level be broken below, Wave A should then extend itself to the 16,334 mark to complete the full retracement of Wave 5. Meanwhile, we do not expect resistance at the 18,961 – 18,967 region as represented by the upper bollinger band and the end of Wave 5 to give way.

S&P500 Continue rally or ....

While many question the sustainability of the recent rally, we believe it is far from over. Small correction may occur with a first support at 879, accumulate on weakness. In addition, volume of the index shows no sign of weakness in accumulation. Our target for S&P 500 is 941.
S&P 500 has recorded the longest streak of weekly gain ever since the peak at Oct 2007. There were 8 gains out of 9 weeks since the recent record low 667 in early March.

The buyers outnumbered sellers considerably as evidenced by the crossover of channel in late April (yellow circle).

Unlike Hang Seng Index, Nasdaq and STI, the retracement of 38.2% is yet to be witnessed. Although its rally lags most of the regional indexes, we believe it is just a matter of time for 38.2% retracement.

S&P500 Double Top

What is worrying, however, is if you look at the bigger picture. The major indices have put in a mammoth, long-term double top. Here is a chart of the S&P since 1970. You can see it very clearly in the chart below ? in 2007, at the 2000 highs, the markets ran out of buyers. But you can also see, the market is now retesting those 2002-3 lows. They were first tested in November 2008 and we got a rally. Now they're being retested again.

This really is a key juncture for the stock markets. If these lows hold, we could be marking an important bottom (although I have no doubt this will be retested). But if we break down below these lows, we're going back to test 1996 prices (600 on the S&P) and possibly even 1994 prices (S&P around 450). These current lows will then mark an important point of resistance that will slow any future bull markets (in other words, when markets rise again, the current lows will be where they start to falter).


On the positive side, Bloomberg reported this week that Elliot Wave International's Robert Prechter, a notorious bear and practitioner of 'Wave theory', has advised his clients to cover their shorts (bets that the market will fall). He first recommended that his clients short US stocks in 2007, saying that "aggressive speculators should return to a fully leveraged short position." But Prechter wrote to his clients this week, saying that "the market is compressed. When it finds a bottom and rallies, it will be sharp and scary for anyone who is short. I would rather be early than late."

SP500 uptrend continuing

The S&P 500 closed lower on 14April09. The session prior to this closed near the open, indicating that momentum was neutral. By right, the lower close on 14April09 after a neutral day should indicate to us that short term momentum is turning down. The S&P 500 might retrace slightly. We would like to see a close below 832 to confirm that a retracement is in play. Closest support is at 814 then 804.

However, upside momentum for the S&P 500 and equities in general has been strong for this up move and our bias continues to lean towards the long side in favour of the trend. A close above 859 would indicate that the uptrend is continuing.

Rally Due For Consolidation After Rally

The S&P 500 is exerting a strong influence on the STI at this juncture. It has strong overhead resistance in the 785 to 805 region. Based on the recent close, it should rally to test that level soon. We need to observe how the S&P reacts to those levels before assessing whether there is still more upside to the current move. When the S&P 500 is testing that level, the STI should begin to slow down after one more upward push as well.

On 17Mar09, the S&P 500 closed near the high of the day at 778. Contrast this with the day before when price rallied but closed below its opening near the day’s low. This formed a shooting star candle that tells us a lot of selling came into the market. The combination of these 2 days tells us that there has been a good amount of selling, but it has been absorbed by new buying. This usually points to higher prices.

However, there are multiple resistance levels at 781 (projected monthly resistance), 785 (projected weekly resistance), 795 (61.8% retracement), 800 (round number) and 805 (approximate 50 day moving average and previous lows). How the S&P 500 reacts to these levels will largely determine whether the up move still has steam. Nonetheless, we should at least see prices begin to slow down and consolidate around this region. The 795 to 800 mark looks like an attractive target.

The S&P 500 has rallied sharply over the past week. It has the trappings of a technically driven move, with multiple oversold oscillators unfurling and taking prices higher. Although the move is displaying a good amount of upside momentum on the daily charts, we do not believe that this marks the end of the current bear market.

From the weekly chart above, we can see that the current move is not particularly significant with regard to the overall trend of the S&P 500. In other words, while the daily charts are rallying it has barely begun to register in the weekly charts. Because of this, we classify the move as a bear market rally for now.

S&P just the begining of bear 3

The S&P 500 has continued to slide off after closing below its lows at 741. We continue to maintain our view that this marks the beginning of the third leg down in the bear market.

At 741, the S&P 500 has already breached the 2003 base from which the 2003 to 2007 bull market ran up from. To find the next support level, we have to go all the way back to 1996. where we find a low at the 605 level. 605 also coincides with the psychological 600 level. Apart from this there is little other support in sight.

In the weekly chart above, we have shown the bear market from its inception in October 2007 until today. Swing highs and lows delineating the first, second and third legs of the bear market are denoted in red, while the rallies in between are in green. What is slightly worrisome at this point in time is the sharp rate of decline that the S&P 500 has been undergoing for the past 3 to 4 weeks. Typically, the third leg down of the bear market is milder in both magnitude and also rate of decline than the second leg.

However, at this point in time the initial ‘push off’ from the 741 low is rather sharp. If this current rate of decline continues, it would take us to the 600 level rather quickly.

Why We Have Reason for Concern DOW and S&P 500

The Dow Jones Transportation, the Dow Jones Industrials, and the S&P 500 Indexes have fallen short of important monthly and weekly closes.

The Dow Jones Transportation Index

Until today, the 200 month moving average has not been breached for 33 years (the last time it was breached was in 1976). Overall this is a concerning chart as it gives a leading indication of where the Dow Industrials are going (according to the Dow Theory).

The next major support level on the Dow Transportation index is at 1,918, approximately 23% below the current level.

SPX 500 Index

The weekly close today is beneath both the 2002 and 2008 lows, which is very concerning. The chart of the S&P 500 going back to the 1920’s, could suggest that in the long run the S&P 500 moves to the double top target at 360.

Dow Jones Industrials Index

This chart is far from constructive. We now close the week below 2002 lows which could open the way for a test of 6,356 over the coming weeks/months with interim support at 6,973.

804 is a short-term low for S&P 500

Last week we mentioned that a short-term technical rally might be in the cards, this was contingent on the S&P 500 holding up above the 857 (support) to 844 (opening price of rally candle) region. The rationale is that a strong technical rally should not retrace to the opening price or close below support. However, the next trading day, the S&P 500 closed at 844, immediately invalidating the possibility short-term rally.

On Friday’s close, the S&P 500 closed at 825 slightly above support at 818. A close below 804 would takes us down to the 818 to 741 trading band where we believe momentum should carry the S&P 500 towards its 741 November 2008 low.

804 is a short-term low, and usually a close below short-term lows brings in more selling as it indicates that the bulls have insufficient buying power to hold price up.

US equity technicals - The clock is ticking

There is no change to our preferred and alternative outlook for the US market. From the 5-wave decline in last week's hourly charts, we deduce that the current rebound is probably the corrective wave-2 of the final major wave-5. The DJIA could rebound to about 8,498-8,637, its 50-61.8% FR levels while the S&P500's rebound will end close to 889, its 61.8% FR level. Both wave counts are still valid. Either way, we are looking for a major down leg after this minor rebound. Our preferred wave-5 target of 6,600 for the DJIA is still possible if the 7,400 level gives way. Otherwise, a bullish double bottom could form, followed by a strong relief rally.

US equity technicals - “No”bama rally

Five-wave down leg indicates “Obama” rally is unlikely this week. Since 6 Jan, the DJIA has shed 1,092pts or 12% to reach a bottom of 7,995pts last Friday before springing back to 8,281pts. The fall was a five-wave decline, which is a sign that the “Obama” rally that most investors are expecting might not pan out this week. In fact, we think the US market is set to lose ground after a rebound on Tuesday.

Rebound target. Assuming a 38.2-50% Fibonacci retracement (FR) of the recent decline, the DJIA’s rebound could end between 8,412 and 8,541pts. The S&P500’s recovery could end between 865pts and 880pts. A stronger rebound towards the 61.8% FR pegs the DJIA at 8,670pts and S&P500 at 895pts. But this is expected to be followed by a sharp correction towards month end or early- to mid-Feb, depending on whether the wave “5” down leg or wave “b” is taking place.

Both wave counts may be still in play. Both our preferred and alternative wave counts are still valid. In both wave counts, we are looking for a major down leg after the end of this rebound. If our preferred wave “5” has already started and assuming that wave “5” equals the length of wave “1”, the DJIA could hit 6,600 before bottoming. Confirmation of wave “5” would be a break below its 7,449 Nov low.

7,320-7,449 target in alternative wave count. Assuming the DJIA springs back to the 38.25-50% FR (8,412-8,541pts), followed by a 1,092pt correction, which is similar to the 7-16 Jan decline, the likely target for our alternative wave count is 7,320-7,449. The 7,449 target would indicate a bullish “double bottom” formation. This should be followed by a strong bounceback or late “Obama” rally in Feb.

738-753 target for S&P’s alternative wave count and 624 for preferred wave count. Assuming the S&P 500 rebounds towards the 38.25-50% FR between 865 and 880pts, followed by a 126.9pt correction, which is similar to the 6-16 Jan decline, the likely target for our alternative wave count is 738-753. If our preferred wave “5” down leg is taking place, the S&P 500 target is 624pts, assuming the length of wave “5” equals wave ‘1”.

S&P 500 - good support at the 857 level

Last week we wrote that the S&P 500 has to maintain above the 900 level for the rally to continue being viable. This has not occurred and over the past week with the S&P 500 trading below 900. Closing below 900 indicates technical weakness and drastically lowers the odds of a rally.


There is good support at the 857 level and the short term decline of the S&P 500 should slow down there. A close below 857 would tell us that bearish momentum is stronger than expected and would take the S&P 500 to the next key support at 818. 951 and 818 continue to remain critical numbers. A close higher than 951 would indicate a high probability of a rally to at least 1007, while a close below 818 would take us to the November 2008 low of 741. In the mean time, the most probable scenario is for the S&P 500 to range trade between 857 and 918 again.