SPX update: should we be bearish or bullish?

The following question appears to be on everybody’s mind “Is a bear market upon us?”. For some that means a correction larger than 10% for other 20%. Regardless, and therewith the answer is actually already no, because if we all think like that, then the market will do the opposite; bear markets start with euphoria, bull markets start with “Armageddon is upon us”. But, here at Intelligent Investing we don’t trade upon anecdotal evidence, we make trading decisions based on observable evidence; on what we know today. Not on what we think it will be. So let’s take a look at some simple (pun intended) charts and see what the weight of the evidence tells us. First up, our longer term simple moving average (LT-SMA) chart of the S&P 500.

Chart A shows the current market, chart B shows the market in 2007 through early 2008: the end of the bull and the start of a bear market. What’s directly obvious is that the current LT-SMA looks nothing like that post July-2007. In fact it is similar to the -in this case- April to mid-July 2007 time frame. Of all things that can become bearish on the current chart (price below the SMAs, inverted SMA; dotted on top)  there is not one single bearish signal.

chart 1

Although we are cognizant that of course things can change and morph into a bearish chart, let’s take a look at the daily chart to see what price levels we need to watch before we should become worried that such may happen. The crucial levels to watch are SPX 2067-2064, and 2039. The former were prior resistance levels and should now become support. The latter is the next low after the important SPX 1980 low, and a break below that level will most likely mean that the SPX 1980s will be revisited. Note that price is within the short term green and black uptrend channels and that the lower trend lines coincide with the 2067-2064 zone. For the trend to remain up, it must remain in this channels, as such a drop below 2064 and especially 2039 is first bearish indication. In addition, all daily TIs are pointing down, wanting to see lower price. In fact, if we apply Fibonacci extensions using the 2135-2099 drop and the 2126 high made this week as waves a and b, respectively then the 100 to 161.8% extensions of wave a, measured from the wave b 2126 high target 2090-2068. Right at the 2067-2064 zone in other words.

chart 3

Hence, the longer term chart does currently not resemble a bear market at all, but the shorter term chart suggests a smaller correction is upon us with an ideal target of SPX 2060s, possible 2040s.

 

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One thought on “SPX update: should we be bearish or bullish?

  1. Pingback: S&P 500 update: is a bear market upon is? A simple look at the 50d and 200d SMA tells us “no” | Intelligent Investing

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