Diary of a Financier

SPX Weekend Update: Cyclical Correction Mode

In Capital Markets on Fri 19 Oct 2012 at 18:08

Drawing upon signals from the S&P and the NASDAQ, I posted a couple entries this week that provided progressive conviction at the end of a few weeks’ worth of study: we have already experienced a cyclical market top, now we’re correcting. I’ve recorded my thoughts throughout this process, and I’ve been shedding Beta for more than two weeks. Today, SPX closed -1.66%, providing all the confirmation I needed before unloading my last remnants of risk.

While the SPY’s daily fractal is still tracking its 2q12 analogue in terms of priceaction, the indicators from each comparison period don’t coordinate as precisely–particularly the stochastics:

SPY daily- tracking tightly to the 2q12 analogue, although the analogue’s daily indicators aren’t as precise as the weekly.

The weekly chart provides the tight fit I’m looking for, with self-similarity in chart pattern construction and indicators across the analogue periods:

SPY daily/weekly/monthly- bear divergence abound in daily + weekly charts; notice how tightly the weekly indicators fit with 2q12 analogue’s.

I wanted to reiterate my downside targets for SPY’s correction henceforth. To derive these targets, I used Fibonacci levels as a ruler, combine with historical precedents from the three corrections that’ve already occurred during the recovery rally since 2009’s crisis low. Here are my support targets for SPY:

  • 1st support- $140.15 (38.2% retracement level, -2.25% below today’s close, -5.37% correction from highs)
  • 2nd support- $137.60 (50% retracement level, -4.03% below today’s close, -7.10% correction from highs)

I turn to the stochastic on my weekly SPY chart (as the best fit) to find a proxy for determining SPY’s trading range. A deeper correction makes sense here–especially in a stochastic world–because the rally out of SPX’s last trough has been very steep and very short (in terms of time). Hence, I’m using the 50% retracement threshold at $137.60 as my base case.

~~~~

Week-end closing prices (4:00 est):

SPX @ 1433.19
ES/ @ 1424.00
SPY @ 143.39

–Romeo

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  1. […] the support levels I rolled-out last week, SPX should begin its bottoming process as soon as next week–by which I mean SPX […]

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