Friday, August 3, 2007

S&P 500 Chart Update after Big Drop Today (August 3, 2007)

On August 2, 2007, I said that the S&P 500 Index ($SPX) would bounce to at least 1484, a 38.2% retracement from the all time highs of 1556 on July 2007, to the recent bottom of 1440 late July 2007. However, the $SPX couldn't even bounce to the 38.2% retracement level. This is a sign of a very weak market.

I also said that after the bounce, the $SPX would re-test lows from 1437-1440, and we have to see how the $SPX behaves, whether it forms a double bottom, or break through support.

Today, August 3, 2007, the $SPX went down 2.66% to end at 1433.06. We have our answer: the $SPX fails the re-test of the lows. And support (1437-1440) is now overhead resistance.

Breaking the 1437 level is also not positive, since 1437 is a 61.8% retracement from the March 2007 lows of 1364 to the recent highs of 1556. I would have liked to see the 1437 line hold, but it didn't.

Next support areas are horizontal support at 1410, 1372 and 1362.

The $SPX is currently very oversold, with only 16.40% S&P 500 stocks above the 50 day moving average. Typically, numbers under 20% signals that we are near or at the bottom. Of course, oversold markets can remain irrational and continue to be more oversold. Next support level is 1410.

There are wild cards in the market. The Fed could cut rates, and impact the $SPX positively.

Also, there are sectors which are working better than others.

Perspective from 2 Year View

If we look at the 2 Year view, we can get a better perspective. We can set up a Fibonacci grid from the October 2005 lows to the July 2007 highs (Fibonacci means that certain numbers, such as 38.2%, 61.8%, and 50% occur very often in nature. And this can be applied to stock charts as well. This can aid in determining resistance and support levels). If we look at the 38.2% retracement, we find 1411, which coincides almost exactly to the 1410 level mentioned above when looking at the 6 month chart above. When we look at the 50% retracement, we find 1365, which coincides almost exactly to the 1362 level above when looking at the 6 month chart above. This is a good sign that the support resistance levels mentioned in the 6 month and 2 year charts are valid. (Valid means they are valid, but it doesn't mean that the support levels will always hold. Support levels can be breached, or stocks or indices could bounce at support levels).

Today's 6 month Chart of $SPX

Today's 2 year Chart of $SPX

1 comment:

Niznusan said...

Very informative..