Archive for December, 2010

Last week, price started definitively rising up through the resistance area defined by the two levels from the quarterly bars chart.  It’s midway through that area now.  A breakout above this region will confirm a strong uptrend in the short term.

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In my last post I showed that the market is near resistance that comes from the very long term chart.  Now, we see that in this past week, the market has gone into a sideways consolidation just under this resistance.  Everything I said in my last post still holds, and we’re just waiting for the other shoe to drop now.

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In the first chart here, daily bars updated through last Friday, Dec. 10, clearly the S&P 500 has robustly broken out above the cluster of resistance levels we’ve been watching these last few weeks.  Thus, at least the short term outlook is for continued uptrending.

I’m now concerned about the long and very long term outlook.  See the second chart here, the quarterly bars chart from 1950.  Price is now up against those two primary red resistance curves, whose levels I have marked on the daily bars chart.  Also notice that for the last dozen years, both the RSI and the MACD are showing strong negative divergences from price, suggesting imminent weakness on this timescale.  It could be that price will continue up through these R levels and then exhibit weakness in a few quarters or years from now.  Or, price could turn down from the R levels.  So, we should watch price behavior as price encounters these R levels on the short term chart.  Indeed, this Monday morning, price is getting ever closer to the lower R level, having hit 1244.5 so far this morning, where the lower R level is at 1250.9.

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On the chart this week I’ve put back the original S2 since it’s very close to the S2 Calibrated I showed last week.  Also, I’ve put back S3 and S4 so we can see clearly how far down the decline from the Nov. 5th top came.  It crashed straight down through S4 and S3, stopping and consolidating at S2.  The standard Midas interpretation of this is that, since price broke down through the highest S curve, S4, then this was the start of a new downtrend.  But, this nascent downtrend halted at S2, and during last week bounced strongly up from there.  Now, price is up to just about the Nov. 5th high.

On Thursday of last week, price moved strongly up through R4, which is nominally the sign of the start of a new uptrend.  But now, price is up in the same resistance area that stopped the up move on Nov. 5th, so I’m hesitant to say we have a new uptrend unless and until price breaks up through the 61.8% Fibonacci retracement level at 1230.  So, that’s what we should watch for in this coming week.  If price does break above 1230, then I for one will go strongly long the market  (but please, read my disclaimer!).

If price retreats from where it is now, then we would have the situation where, durning these last several weeks, price has been breaking both supports (S4 and S3) and resistance (R1).  This is a display of a wide consolidation, where, even though price may for several days seem to be moving strongly, there’s actually no trend.  And we’d have to wait for a breakout out from this wide range.

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