Sunday, July 19, 2009

S&P 500 May Go Much Higher

It just may. Last Wednesday I suggested the possibility of S&P 500 Index forming not "the head and shoulders top" but "double bottom", with some caveats (see the post below).

Well, well. So far so good. The last week's performance was one of the best this year. If the formation is the double bottom, the target would be around 991 (W's mid point plus distance between the mid point and the right side bottom). I personally think it may go higher than that, and my target is around 1,050.

The chart is S&P 500 Weekly chart. I put up this chart on my Japanese blog post already, but I just noticed something else about the chart.
But first, notice that my target of 1,050 is a nice confluence of several trends - 89-Moving Average trending down, the index trending up, and 61.8% Fibonacci retracement line from the September 08 top to March 09 bottom. If, as Elliott Wave people say, the bear market ends in three waves and we are currently on Wave 2, the start of Wave 3 could be somewhere around this confluence.

Now about that something else I said I noticed. Look at the most recent 5 weeks: 4 consecutive down weeks , and one huge up week. Now look at the March low: 4 consecutive down weeks and one huge up week that started the run. The recent 5 weeks is like a miniature version of the March bottom. Nice fractal.

The difference is that the recent pattern already achieved what the March pattern had done in 8 weeks; that is, getting back to the beginning of the decline. The low of the current pattern (870) was at the same level right where the severe 4-week decline started in February. I think the index may have touched the support level there, and now are bouncing back up.

Index futures are currently green, no doubt due to the hope that CIT may be able to avoid bankruptcy.

(BTW, CIT joined my "Shoulda, Coulda" stocks. I did call up the screen on Thursday to buy the stock at 39 cents. I didn't think CIT would be allowed to go bankrupt, and I was almost certain they were driving the stock down to buy in and flip it the next day, which was exactly what happened on Friday. And the stock more than doubled. Why didn't I buy it? The money I was willing to risk would have gotten me 10,000 shares, and doubling that money didn't seem like much on Thursday. What was I thinking???!!!)

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