Well folks, I’m back. A word of thanks is called for.

  • Thanks to those who have kept visiting the blog despite my failing to post for a few days.
  • Thanks to those who noticed I had not been writing my blog and wrote in to enquire if all was well.
  • Thanks to my friends who have been supportive.

The personal issue has been resolved - at least as well as it is going to be for the moment.

Now to today’s contribution.

I’d like to review the S&P to see if there are any guides to future price action. I am still out of the market.

Chart 1 shows my best case scenario. We are in a secular sideways market that resembles the 1966 to 1982 price action in the DJIA. The 2007 S&P high finds its counterpart in the 1973 DJIA high. The S&P is in the process of making a low akin to the 1974 DJIA low. Once this low is completed, we’d expect to see a move up.

11-03-2008-12m-djia.jpg

Chart 1 DJIA 12-M Swing.

My technical approach takes a probable view and says to the market: “Show me”. But right now, my fundamental context is far more bearish. I see the FED attempts to prevent ‘an economic collapse’ as causing an inevitable rise in the inflation numbers; this will force it to raise rates. In turn, this will lead to a second-wave of the sub-prime crisis that will possibly lead to a deflation.

But for the moment, let’s stick with the best case scenario - the technical view.

It’s important to understand that technically, markets don’t repeat history but they do rhyme with it. In this context, this means we may see a new low below the 2002 S&P low (768) but need not.

Chart 2 starts the process of answering whether a new low below 768 is likely. Chart 2 shows an Upthrust Change in Trend Pattern. There is an 87% probability that the ES will come to the Primary Buy Zone. It did that with a strong rejection extreme (shadow) for the October 2008 bar. This is an indication that we may have seen the lows.

11-03-2008-12m.jpg

Chart 2 12-M S&P

Supporting this bullish scenario, is the end of year rally which starts around the last week of November and tends to be most reliable for a rise into December.

Chart 3 shows the 3-day swing chart. I show this as a window to my thinking.

If I want to ascertain the probability of a breakout, I look to the average volume per bar in the swings. The price action and volume of the past 3 days suggests that the S&P may break. We had a large day up on Tuesday October 28 and then 3 neutral bars. This suggests we may see a retest of the 839 lows made on October 10. The retest will be an important guide in answering whether we’ll exceed 768.

11-03-2008-sp-3-day-c3.jpg

Chart 3 3-Day Swing S&P

On the other hand, the 3-day swing also shows a sideways market with the Primary Sell Zone. Market Profile theory says we should see prices reach the zone by tomorrow. It would be very bearish if the market breaks below 839 without reaching 1044 to 1018.

Chart 4 shows the sideways market.

11-03-2008-sp-3-day-c4.jpg

Chart 4 3-day Swing S&P

I am more equivocal than usual because with the increase in ranges, it’s difficult for me to get a feel for the market. But if pressed, I’d say the move to the 1044 to 1018 to be  more likely. Once we get there, if the market can accept above 1086, we will likely see a Xmas rally.

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