Sunday, March 7, 2010

SPX Technical Forecast - 03.07.10

**Skip to summary at the bottom if you don't care for the analysis**

On the chart above I draw out the bullish and bearish arguments.

Currently I'm slightly leaning towards the bullish argument despite numerous bearish evidence.

Bearish Arguments:

1. Strong sign of 1150 resistence
2. Failure at 1150 can be indicative of a double top
3. Daily RSI confirms top situation over 1-2 weeks
4. Lack of strong bullish volume confirmation for a break in 1150 resistance
5. Weekly Chart also confirms 1150 resistance
6. Weekly Chart presents significant downward pressure with prices below 200 SMA
7. Weekly MACD points out to already topped out upward momentum and the begging of downward momentum.

For this Bearish situation to be confirmed it will take lots of work for charts to play out this way. Prices will have to top out within 1 to 1 and half weeks, and then the full bear trend would only be confirmed over a period of more than 4 weeks. The last 10%+ drop took over a month before prices started to recover. So another significant drop would have to occur along with a break in 1060 support created from the last drop.

Confirmation signals for a bear tend would be a break in 50 RSI support. The previous uptrend, pre-10%+ drop, 50 RSI support held. Once that uptrend broke, 50 resistance held throughout the 10%+ drop. Post levels will act as a confirmations signal and give evidence to whether or not we will see higher highs or higher lows.

Bullish Evidence (4 weeks + out)

In my opinion I find this bearish move more unlikely in the short term (4 weeks + ).

Here is the Bullish Evidence:

1. Weekly RSI is not near oversold territory yet.
2. Previous 10%+ correction leaves huge leeway for higher lows.
3. Short term support of 50 and 200 SMA on Daily and on weekly short term support of 50 SMA all under price action.

The way the charts are set up inter-temporally, tells me that the upward trend started from march or july is faltering (via bearish evidence). Such a long term trend cannot be sustained beyond higher resistance levels of 1200+.

The Bearish evidence only points to a short term correction where prices will fail at 1150, correct and stay above support of 1060 making a higher low. A retest will have to occur and break to the upside leaving prices room to move much closer to 1200 levels (price fail will have to play out between 1-2 weeks - expect downside movements by the end of this week into the following).

The short term SMA evidence will also be key indicators, as long as prices levels stay above, such a bullish move to 1200 level post an 1150 price fail will occur with a higher probability. The 200 SMA weekly only gives evidence that higher prices past 1200 will be less likely.

By mid or the end of the second quarter we will see the SPX at 1200 levels. For third and fourth quarter levels I suggest looking to the fundamentals.


Apologies for confusing rhetoric:

1-2 weeks out: Bearish
4 weeks and longer: Bullish

In other words bearish for most of March but by mid to end of second quarter I will be bullish on SPX to the 1200 levels.


Alexander LĂȘ
Managing Partner
Analyze Capital LLC

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