Yesterday I examined the context to the current rally. Today I’ll look at the rally itself.

PRICE ACTION

Figure 1 is the price action of the March 6 lows. To date the rally has gone 31.32%, greater than mean +2 on the 18-day (monthly trend) impulse move; the 5-day line has turned down. In addition, the stats for a corrective 13-week (quarterly trend) move are 13% +/- 3% which means that the 13-week line direction has also moved greater than mean +3 stdev.

This would suggest that buying now without at least an 18-day swing correction would be a high risk trade. The 18-day line, as at April 22, will turn at 758.19. As Figure 2 shows, this is just beyond the 50% retracement of the upmove (50% = 771.46). In my view such a correction would be inconsistent with the strong initial upmove. The strong move up implies a correction  no more than to the 33.33% area.

Figure 2 shows there is a projected retracement area to 801 to 814 that encompasses the 33.33% retracement (805).

TIME

We have the linear cycles and seasonals topping out around end April to first week of May.

ROADMAP IDEAS

Putting all that information together, my best guess is we’ll see a pullback late this week to early next week to the 801 to 814 area. Following the pullback, we’ll see an attempt at the 894 area; but we should not see a monthly bullish-conviction close above 894. I say this not only because of the 12-month resistance at 894 but also because of the stretched correction on the 13-week.

Any monthly bullish-conviction close above 894 or daily close above 944 would suggest that a 1966 to 1982 type correction is in play. Until this occurs, I lean to a 1929 type correction of the 1982 to 2000 (S&P) secular bull market (or 1982 to 2007 DJIA bull market).

Note that Figure 2 also shows a potential Head & Shoulders targets ranging from 775 (preferred) to 792 (minimum). The preferred target is just above the 50% retracement (770) of the move up. If the S&P gets down to these prices, I believe it is unlikely that we’ll see anymore than a marginal new high above 875.65, if that.

I’ll do an update once the S&P completes the correction or breaks above 875.65 without attaining the suggested 801 t0 814 retracement zone.

2009-04-23-18d-stats-sp.jpg

FIGURE 1 18-day S&P

2009-04-23-81m-sp.jpg

FIGURE 2 81-minute S&P

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