July 27th, 2010
I coined a pet saying: “There are no accidents or coincidences, there are only mysteries.” Well, this is no coincidence. What follows is a mystery in the market’s action we ought to focus on and it’s probably no accident or coincidence. There could be inexplicable forces at work in this market since November-December 2009 and its locus is at 1116 on the S&P 500 Index. Take a look at yesterday’s action just before the close:
The day opened with a nice pop that was quickly and summarily disposed of while the rest of the day saw three attempts at crossing above 1116. That may seem like an arbitrary level but we’re no stranger to that number because it’s exactly the same level that the market struggled to climb above several times late last year. We chartists count pivot points and the more pivot points at about the same level, the more significant that level becomes. Here’s what I’m talking about:
Last November and December, the market touched that level five times before finally crossing in January. However, that move failed with a resounding thud as the market declined 7.57% decline in 8 sessions. It ricocheted off that level again in June and, finally, yesterday. Don’t know about you, it seems pretty eerie for me.
One more thing I should point out. The long-term pattern since October on my S&P charts have shown an ascending diverging wedge (also called a bullhorn) pattern. Some other blogs have begun drawing a descending neckline (i.e., trendline) for what they call an emerging possible head-and-shoulders top pattern where the right shoulder is now being formed.
What these other bloggers haven’t shown you is that that neckline/trendline is nearly exactly parallel with a trendline linking the October 2007 peak and the April 2010 peak that I’ve been watching. Elliottician’s give that trendline much credence as proof of their impending next big decline. The optimist in me finds those parallel lines to be the beginning of a humungus downward-sloping consolidation channel, the precursor of the next big push higher.
The market has a lot of work left to finish before it becomes a reality but it’s something positive for us to watch emerging and look forward to like:
- crossing 1116
- crossing 1164
- several tests at break above the downward-sloping trendline
- ultimate break above
Looking at the scale of the above chart, we could unfortunately be talking about another 3-6 months before there’s any chance of moving above 1200.