Head and Shoulders Top? S&P 500 to Consolidate and find Lower Trading Range

S&P 500 Market Top?


The U.S Stock Market as represented by the S&P 500 has made a good run, from S&P 500 level of 666 to 1219.80 for a strong rally.

However, based on the Chart Annotation above, the S&P 500 may have hit a Head and Shoulders Top, a Technical Pattern (analyzing patterns based on stock chart patterns) that suggests that a Top has been made and a downtrend could ensue.

Consolidation Pattern then Breakdown or Breakout?



Longer Term, the S&P 500 market may re-test the Previous low of 666, or a more likely situation, the S&P 500 market will start to consolidate into a sideways Symmetrical Triangle Pattern as shown in the chart above.

In the Symmetrical Triangle Pattern, the Stock or Market trades in the triangle, until it reaches closer to the end of the triangle, and then the market may break upwards, or downwards.

The Market does look like it may be going lower and find a lower trading range for now.

S&P 500 Stock Chart Today

Will S&P 500 Stock Market Rally or Continue Downtrend? Market is at Resistance.

The Market (as represented by the S&P 500) is at a decision point. Does the S&P 500 rally or continue the downtrend?




Currently, on Friday, Dec. 5, 2008, the S&P 500 is at 876, and is very near many resistance levels.

1. Horizontal Resistance: Around 900 to 916
   
2. 3 Month Downtrend Resistance: Around 879
   
3. 50 Day Moving Average Resistance: 936
   

If Stock Market breaks through these resistance areas with good volume, there's a good chance the rally continues to at least 1000 to 1040 on S&P 500.

Otherwise, the S&P 500 could continue its downtrend.

We can also pay attention to any big gap up at the open, followed by a high volume reversal to the downside to end the day down. This could mark a failed attempt to breach resistance.

Today's S&P 500 Chart

Stock Market (S&P 500) Short Term Positive, Intermediate Term, Still Bearish

After today's S&P 500 breakout above the 50 day moving average and short term downtrend, the stock market should have some short term momentum.

The S&P 500 is currently around 1350.



Next resistance area is around 1400 on the S&P 500.

Intermediate term, the S&P 500 is still on a downtrend. The S&P 500 is still below the 200 day moving average.

But let us see how the market performs as the S&P 500 reaches initial resistance (1400).

We might be in a trading range short to medium term, but looking towards the end of the year, it is still possible that we will still break down below 1270 on the S&P 500 based on a 5 year view of the S&P 500.

Today's Chart

Was that a Double Bottom on the S&P 500 or is this an Opportunity to Short?

Today, the US Stock Market had one of the best rallies in years. The Dow went up over 416 points for a 3.55% gain. The S&P 500 bounced off the previous lows of around 1272 to make a 3.71% gain to 1320.65.

Is this the double bottom we have been waiting for? This blog expected a re-test of the lows of 1270 on the S&P 500. We recently tested the bottom and successfully bounced. But does this mean that we have a solid bottom?

Not necessarily.

The intermediate trend is still down. This may be just an oversold rally with massive short covering.

If our stock market breakdown scenario holds, we could be forming some sort of handle, in preparation for the next leg down.



In the chart above, we still see the S&P 500 in a downtrend. The S&P 500 is still underneath both the 200 and 50 day moving average.

Two resistance areas are the 50 day moving average, and the 50% retracement (from the 1396 to 1270 drop) line of around 1330. This 50% retracement also happens to hit other previous levels of support and resistance.

If we draw a triangle estimating the 50 day moving average trend and the 50% retracement line, we can see a future potential area to start a new short position.

But we can afford to wait and see how this market reacts before finding a good place to short.

Today's Chart

Stock Chart: LVLT (Level 3 Communications) has broken uptrend line? (June 15, 2007)

Level 3 Communications (LVLT), has been on a nice 2 year uptrend. However, recently, it looks like it has gone below the two year uptrend.

Looking closer at a 5 month chart:



We see that LVLT is underneath both the 50 and 200 day moving average, a bearish sign. Another bearish sign is that the 50 day moving average looks like it is about to go under the 200 day moving average (The Death Cross ).

The only positive I can see is that the stock has not breached the $5.20 support yet.


Note on Trend Lines:

Yes, give a chart to several chartists, and they may draw trend lines a bit differently. However, in the case above, the trend line looks correct, as the line is validated by six different points along the line. The Trend line also nicely supports the 200 day moving average.

Alternate Plays/Charts

Alternatively, Corning Incorporated (GLW), might be a good Alternative Play (Annotated Chart)

Stock Chart: BTU, Peabody Energy, Coal Company is Coming Back

Peabody Energy (BTU) is a Coal Company. For one year, from around May 2006 to early April 2007, BTU had been on a downtrend. Then on April 2007, it spiked up on good volume, breaking the one year downtrend line, and has gone above the 50 and 200 day moving average. This would have been a great Buy Point.

This jump in Peabody Energy (BTU) also coincided with the time that Warren Buffett had been buying the rails. Jim Cramer has said suggested that this play is an indication that Coal is not over .

Even if you didn't catch that point, the 50 day moving average has moved above the 200 day moving average, which is a bullish sign. BTU is also above previous resistance of $48.46, and has broken out of a Dec 2006 to April 2007 Bullish Cup and Handle pattern. BTU is also above both the 50 and 200 day moving average.

Even if you didn't catch BTU at the ideal buy point, you still may be able to catch BTU's run, as the new uptrend is still intact.

GLW, Corning Glassware, Good Chart, June 5, 2007

GLW, Corning Glassware looks to have a good chart. Several months ago, it broke out of a year long downtrend. It is currently above both the 50 and 200 day moving average, and has broken out of the old $25.57 resistance. Volume on breakout is not impressive, but GLW's chart is still looking good.