TECHNICAL REASONS FOR SPX 1010 SUPPORT
There are several compelling reasons why 1010 keeps popping up as an area of critical support. The first chart shows a simple H&S top pattern that broke out with a gap Tuesday August 24th. The bears are viewing this as the right shoulder of a much larger H&S topping pattern. That could very well be the case but there is other technical evidence that shows we are probably entering a very large trading range in my opinion. The first chart of the small H&S top pattern measures out to 1010 right where our previous low found support. Read further to find out why SPX 1010 comes into play on so many different levels.
$SPX Daily - Trading Range
The next chart is the weekly showing several more reasons why 1010 is such a critical support zone. First, lets look at the Fibonacci 38% retrace off the March 2009 crash low, (red arrows). Again, the 1010 level comes into play as the first line of support. Next is the 88 week moving average (wma) which works beautiful on the SPX for support and resistance. It has just recently turned up after the 2008 - 2009 crash low and started rising - suggesting strong underlying support. As of Tuesday Aug 24th it was at 1012 again very close to our 1010 support zone. As you can see it is still on a buy signal and will stay that way until the 30 wma crosses over the 88 wma to the downside. There have only been a handful of these crosses since 2000 so this buy signal is very important to me.
$SPX Weekly Chart #1
The next chart below may look a bit busy but its really not. It focuses on two sets of Fibonacci retracements. The black fib lines start with the bull market top in 2007 and measures down to the March crash lows, black arrows. As you can see the high off the March 2009 low was a 61.8% retrace giving us the top of our current trading range. This is where it gets interesting. The red arrows measures our current correction off the March 2009 low to the top in April of this year. The 38% retrace takes us down to the 1010 area where we have a double Fibonacci 61.8% retrace off the 2007 high and our April 38% retrace high both coming in at the 1010 area red and black arrows. I’m viewing this area as the bottom of the trading range. Now look up to the 1228 where the red and black arrows are. Again you can see a double fib rail that will act as resistance and the top of the trading range. So the bottom and top red and black arrows maps out our trading range for probably many months to come.
$SPX Weekly Chart #2
I would now like to go back to the previous chart ($SPX Weekly Chart #1) and show why I believe we are in a big trading range and the possible outcome of this trading range. First, this trading range is still immature yet as we are only working on the 2nd reversal point so far. In order for this trading range to be a consolidation pattern we will have to have at least 4 reversal points defined by the top resistance rail and bottom support. It is unknowable at this time if the trading range will be a rectangle or a triangle or some other type of consolidation pattern.
What I think we are forming is a halfway consolidation pattern within the 10 year flat top trading range. The red arrows on the chart measures our current trading range or consolidation pattern as a halfway pattern that will eventually take us back up to the old highs around 1565 or so. This is very similar action that happened back in the 70’s secular bear market. After reaching the secular bear market low in 1974 the Dow rallied all the way back up to the 1000 area that was very stiff resistance for that secular bear market. I believe the Dow actually made a small new all time (nominal) high at 1051 if memory serves me and then meandered all the back down into the huge trading range never to go lower than the 1974 low that showed up right in the middle of the secular bear market. I believe our crash low in March 2009 marked the low and mid point for our current secular bear market - in time and price - similar to the 1974 low for the 1966 to 1982 secular bear market.
The next chart is a monthly chart that puts everything into perspective. It shows our secular bear market taking place within the big flat top triangle consolidation pattern. The little red rectangle on the far right shows our new trading range we have been discussing. Bottom line is we are just starting the consolidation process that will probably take quite sometime to complete. It looks like a traders market for those so inclined.
$SPX Monthly Chart
One last chart to show how the 2002 to 2007 bull market unfolded using the Dow. The halfway pattern in that bull market took the shape of a bullish rising wedge formation that lasted 2 1/2 years before it broke out to the upside marking the high for that cyclical bull market. To the far right you will see the proposed blue horizontal trading range.
$INDU - Weekly 2002-2007 cyclical bull market
All the best…..Rambus
