S&P 500 Index at a Crucial Crossroad
This chart provides an idea of where we're at in the current bull market cycle.
Let’s examine the crossroad we are at right now around 1420 on the S&P 500 and why the next move may be a "tell," as they say in poker.
The correction from the 1474 highs can be read as a 3 wave correction, which in Elliott Wave Theory is corrective against the major trend, which so far has been up. Three-wave corrections serve to work off overzealousness of the crowd and above-average bullish sentiment. To be sure, at the 1474 highs the sentiment surveys were running pretty hot and near 3-year highs, a flag that waved a warning sign for me. The correction, though, worked off that sentiment, and at 1344 was in fact a Fibonacci 61.8% retracement of the rally from 1257-1474 that we witnessed this summer.
These type of Fibonacci fractal retracements at 61.8% are common correction patterns in bull cycles.
What we need to see near term on this crossroad then is a clear cut rally over the 1424 area, which now is a 61.8% upwards retracement of the drop from 1474-1344. Why is that important to clear? Because 61.8% also is a common upwards retracement for a wave 2 counter-rally in a downward trend. Clearing that hurdle would indicate that the rally from the 1344 lows is more than just a countertrend rally, and likely the confirmed start of a solid leg upwards towards highs for this bull market cycle.
This is why we like to draw these lines in the sands and let readers be aware of what to watch and why. See the chart below to get an idea of where we are at in the current cycle:
Editor's Note: David Banister is the chief investment strategist and co-founder of ActiveTradingPartners.com, a small-cap portfolio and market advisory service.
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.
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.