The Area on the S&P 500 That's Most Important for Bulls
The market will want to take this area out with authority to continue the intermediate bull run.
If we take a look at the length of the 5 waves in the Rising Wedge pattern from the October 2011 lows of 1074 below, and compare them with other waves 2-5, we can see several Fibonacci fractal relationships amongst all of them. This is one of the clues I look for when trying to analyze pivot points and knowing at least what I should be watching for further clues.
In most cases, wave 3 is commonly the largest of a 5 wave structure, but that does not preclude wave 1 from being the largest in the series. To wit, recall the nasty decline into October 2011 that spurred the next big market advance of about 350 points off the bottom. When you have a significant decline preceding the early stages of a 5 wave advance, often the first wave in the pattern is in fact the largest, which may be the case here.
Let's take a look at a possible 5 wave count just so we know what to be aware of:
Wave 2: managed to retrace 155 points of that advance into June 2012, a common wave 2.
Wave 3: rallied to the 1474 pivot, which was a 207 point rally. 207 points is about 61% Fibonacci relationship to wave 1's 350 point advance, again another clue.
Wave 4: dropped as we know from 1474-1344, or 130 points. 130 points is also about 61% of Wave 3's prior advance on the downside.
Wave 5: Theoretically this wave 5 is now from 1343, and if we took 61% of wave 3 advance and add it to 1343, we come up with about 1470. 1470 would then be a double top in the market, stop wave 5 in its tracks... and be followed by a large correction.
So with the above in mind, we advise watching 1470-74 with keen interest as the market will want to take this area out with authority to continue the intermediate bull run. If not, we could be in for some downside trouble....
Click to enlarge
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.
Daily Recap Newsletter