Diary of a Financier

S&P 500 Today: Intermediate Bullishness Finds an Upper-Bound

In Capital Markets on Thu 30 Jun 2011 at 08:35
  • SPX to rally in this ST cycle. 1st resistance around 50DMA ~1315 as of today; 2nd resistance at 1345.
  • I still expect the intermediate SPX target of 1425 per the weekly charts.
  • The SPX 2008 v. 2011 analog dictates a rally up to ~1315 too (a premature Head & Shoulders) before a deep correction. I’m skeptical of analogues, this included, because indicators don’t sync and weekly/monthly charts in 2011 don’t look as exhausted as 2008’s.

To update some of my earlier entries and StockTwits about the S&P 500, I thought I would reiterate my outlook. In the beginning of June, I stated my short-term bearishness with first support around 1260. Check. Intermediate-term, I expected a renewed bull rally, which is now underway. My original target was the 2008 high-water-mark at 1425, which I’ll stick with for now, per the bullish weekly chart. The longer-term monthly chart is still disintegrating, so I am skeptical of how high equities can run. That means I’ll have a quick trigger finger in unloading exposure.

Recall that I went long the S&P 500 ETF (SPY) to crystallize my gains in shorting the Copper ETF (JJC). I saw a recovery in physical Copper (HG/1) that wasn’t echoed in SPX per the usual lagging correlation. As it worked out, JJC broke out of its range and pulled SPX with it. I covered my short JJC for a thin profit, and I’m still riding SPY higher. (The hedge turned into a naked long.)

So I’m poaching an SPY exit. In that hunt, I overlaid the 2008 & 2011 charts:

20110629-114527.jpg
Like 2008, today’s market has set up a bearish Head & Shoulders. Using the 2008 analogue as a guide, SPX should plunge into a correction before reaching the classical pattern’s second shoulder around 1345…

…However, I do not fully subscribe to analogues, especially when the indicators for weekly/monthly charts don’t match. Today’s market doesn’t look as exhausted as 2008’s in their longer-term fractals. Thus, dating back to my New Year’s 2011 Outlook, my upside target is still set on the 2008 high around 1425. I’ll be quick to adjust that goal as the technicals & fundamentals develop.

–Romeo

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  1. SPY surging too far too fast for my taste. Daily chart has quickly found the top of its trading range (stochastic), and shied away from 50DMA @ $132. The weekly chart had me constructive on the intermediate-term, but it’s locked in oversold territory and we can’t forget that QE2 ends today!

    Closed long SPY @ $132.05 (+2.5%)
    Opened long EWJ @ $10.37… more to come on this shuffle to Japan equities.

  2. […] the end of last week, I mentioned my long S&P 500 ETF (SPY) position, which I later qualified with the expectation for a rally to the 2008 resistance around 1425. Well, I sold SPY at the top of […]

  3. […] all gives the SPX 2008 v 2011 Head & Shoulders analogue new gravity. Remember my observation: 6/30/11- Like 2008, today’s market has set up a bearish Head & Shoulders. Using the 2008 analogue as […]

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