Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Jason Haver: SPX and NYA Updates -- Equities Face Long-Term Resistance


SPX achieved the anticipated new high. Here are the next key levels.

Monday's update anticipated that the S&P 500 (INDEXSP:.INX) was headed directly to new highs, and confidence in that view was added during Monday's session, when SPX broke, back-tested, and held at 1867. Tuesday's session closed at a new all-time high. 

In today's update, we'll discuss the bull and bear cases and the zones to watch for each. 

On Friday, I wrote: "Due to the larger trend, this is probably [the] bears' last shot to break these markets down, so any strong bounces from here would likely lead to new highs." That now applies to bulls in reverse (sans larger trend, of course). 
If the market is indeed plotting the head-fake whipsaw I talked about on Monday, then we're likely to see a significant sell-off afterward, as most traders will be caught wrong-footed. This is because classic technical analysis would see a breakout here as very bullish, with targets in the mid-to-high 1900s. After we examine the preferred count and the arguments in its favor, we'll also delve into those more bullish potentials in a bit more detail.
The preferred count continues to see this pattern as a triangle, which has either taken the form of a symmetrical triangle or an ending diagonal. The pivot between those two options is 1887.  

Click to enlarge

Here's a more detailed look at the potential symmetrical triangle, using the NYSE Composite (INDEXNYSEGIS:NYA):

Click to enlarge

SPX reached the key 1885-87 pivot yesterday, but in the event it sustains trade north of 1887, then the symmetrical triangle is in play. Interestingly, the textbook target for the symmetrical triangle also represents a long-term resistance zone.
I think one of the goals of trading ranges is to wear everyone out -- and in doing so, ranges sometimes serve the function of making traders a bit sloppy afterward. While the range is under way, everyone becomes hyperfocused on the near-term charts; then some feel thrilled or relieved when the range finally breaks. Trend followers sometimes even become strangely complacent afterward, due to the emotional release of stored tension that was generated by the range.
But I'd suggest we stay alert even if there's a sustained breakout over the 1887 pivot, because we have resistance showing up on the long-term chart, right near the symmetrical triangle's target zone:

Click to enlarge

So, put simply, the preferred count currently still anticipates that the new highs will turn into a head-fake and whipsaw -- but let's talk about the more bullish option as well.
Prior to the development of the apparent triangle trading range, I had been viewing the bull potential as wave i-up of v-up complete, with the correction as ii-down of v-up (now also complete), and iii-up of v-up still to come. The series of apparent three-wave moves that created the trading range gradually drew me away from that wave count. At the moment, I'm no longer favoring it -- but because three-wave moves aren't always what they seem, my original bull count isn't dead and I still have to continue to respect it as a viable option. That option will likely regain favor as the preferred count if the market sustains trade north of 1914. 
In conclusion, the preferred triangle count accurately predicted the end of the trading range and the immediate new highs, which gives some additional credence to that count. Of course, we don't want to get too far ahead of the market or too rigid in our expectations, but the pivots continue to bear watching as potentially important reversal zones. For the time being, I'm continuing to favor the view that the anticipated new highs are part of a terminal pattern. Trade safe.

Follow me on Twitter while I try to figure out exactly how to make practical use of it: @PretzelLogic.

Follow the markets all day every day with a FREE 14 day trial to Buzz & Banter. Over 30 professional traders share their ideas in real-time. Learn more.
< Previous
  • 1
Next >
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Featured Videos