Sunday, 23 September 2012

S&P analysis

 S&P still has not managed to make a new high in order to fulfil our wave count. However we have to notice two things. The blue upward trend line that was broken has now been back tested. If S&P made a truncated 5th wave (weakness sign), then it could break 1449.98 and push lower towards 1435-25. However we can find a bullish sign also in this move. S&P has also back tested the downward sloping red trend line that connects 1474 with 1465. If the index does not break below 1449.98 (could be used as a stop level), it could make another extension higher towards new highs. Time will tell and we will adjust our counts. I mentioned many times before in this blog that bulls should be extra cautious at these levels and keep stop orders tight.

Another worrying sign in S&P can be seen at the weekly chart I posted below. Each rally after the signal (crossing of 20 EMA) is smaller and smaller. The first rally from March 2009 to May 2010 was nearly a 42% rise. From September of 2010 to May of 2011, the rise was nearly 23%. From December 2011 to April of 2012 the rise was nearly 15%. The latest rise from 1350 level in June is just under 10%.
The market is either loosing power and will make a deep correction or is in the start of a huge rally towards all time highs. Many believe that this upward move is purely the result of market intervention from the FED and that markets will collapse under deflationary pressures. This scenario is getting more and more followers by the day, as fears regarding european debt crisis, chinese growth fears and the sustainability of US debt, all create an explosive and very pessimistic view of the future. I choose to be more optimistic, however the market will eventually show us its true intentions.

Thank you for reading my thoughts.

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