January 19th, 2010

The Importance of S&P 1150 Can’t be Overstated

There’s so much uncertainty and confusion right now that it’s hard to hold a steady course. For me, I still seem to be held captive to a game plan laid out way back on November 9 in “One View of the Market’s Future”, nearly two months ago. The highlights include:

a “game plan” which appears so far to be working and close to hitting the goal of 1125 (I beg some lea way to extend the target range to 1150). As the market approaches the target, it’s time to start speculating about what might come after…

  • The 1150-1200 is a critical area for past pivot points where the market turned in 1998, 2001, 2002, 2004, 2005, 2006 and 2008. These pivots occurred both when the market was trending up and down.
  • A logical target for the bottom of this correction is the neckline of the market’s inverted head-and-shoulders bottom, or approximately 950 in the S&P 500, a 17% decline from the high.
    • The decline fall within the definition of a correction falling short of the 20% required to considered a “Bear Market”.
    • The Index will find support on the 200-DMA, the crossing of which is a key indicator identifying Bull and Bear Markets
    • The 200-DMA will have crossed the 300-DMA by then
    • The 300-DMA will have turned up, the final hurdle before the book on the Crash can be finally closed.

The following chart followed(click on image to enlarge):

It took a little longer than I expected but here we are now, hovering around 1150. From a technical perspective, 1150 as an important hurdle can’t be overstated.

  • Some say that 1150 marks the point at which the worst market impact of the 2008-09 housing and financial crises crash has been repaired and the market has merely crawled back to what would have been the bottom of a severe correction.
  • Others mark 1150 as approximately the 50% retracement level from the 2007 market peak to the March 9 bottom.
  • For believers in the relevance of stock market history, 1150 also marks the level at which where the recovery from the Tech Bubble Crash paused from 9 months in 2004.

Peering out at that major hurdle has stymied me in my trading and search for great stocks for the next phase of the recovery to 1325-1350. But our form of charting isn’t intended to predict the market, it’s aimed at being prepared for market turns and knowing what to do when they occur. In the meanwhile we ride the wave, up or down.

If the market begins a major correction, as many believe it will, we’ll be prepared and not surprised. But patience always seems to pay off and our wait will be resolved soon, one way or another.

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  • Z

    When I was buying last year in February my trader friends thought I was crazy and catching a knife. My family members were too cautious to follow my advice to at least nibble. Now that a lot of stocks have doubled or more I am hearing about it for being cautious. I will never get it.

  • Joe

    Z, last February I was buying stocks also and I joined you with the other "crazies". I was bullish through most of last year up until October 16 when I suggested that portfolio "pruning, trimming and weeding" begun.

    Nothing continues forever, especially not in the stock market, and all I'm saying is that a correction right about here is highly probable.

  • Anonymous

    Joe –

    You were exactly right about that 1150 resistance line. Yesterday, the S&P touched 1150 at the close, and sure enough, today, we saw a 200+ pt DOW decline before noon!

    I used those Bear 3X ETFs from Direxion very successfully today.

    I'm hoping it goes down further towards 900. Then, hoping for a nice energy play or something else cheap and explosive by the beginning of February.

  • Anonymous

    Technical Analysis is a joke. This is hilarious

  • Joe

    You can laugh all you want but today, two days after this post, we're down 3% to 1115 (at 12:51)

  • big dog

    Joe, I thoroughly enjoy reading your blog. I have been following you for a while now and your insight has been spot on and extremely helpful. I have been telling others about you and have even shown them some of your charts. I followed some of your ideas and invested along with you on others. Working out well, keep up the good work and hope to be reading you for many years to come… Wayne B. Columbus OH

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