Showing posts with label long term bottom. Show all posts
Showing posts with label long term bottom. Show all posts

Sunday, November 23, 2008

Stock Market S&P 500 Long Term Bottom Target: 450 to 600, a Drop of 25% to 44% from Here

Previously, we offered analysis that the US Stock Market could be in trouble if the S&P 500 goes below 768.

The S&P 500 recently went to an intraday level of 741 but successfully tested the major low of 768 set 6 years ago on October 10, 2002.

It is still very possible that the S&P 500 could re-test (at least once) 741/768, and the S&P 500 could break below this level.

At this point, where would a potential long term bottom be?

In the Dire Consequences if S&P 500 goes below 768 post, we hinted that a long term bottom might be reached around the S&P 500 level of around 500.

The Long Term bottom could be around 450 to 600 on the S&P 500 over the next several years, a drop of around 25% to 44% from here (S&P 500 Level of 800).


A. No Major Support Until Around S&P 500 level of 450 to 500.



From the chart, aside from seeing the major support area of 768, we also notice that from 1995, the slope of the Chart increases to an unsupportable level, ending up in the Bubble of 2000. The Stock Market had no time to rest from 1995 to 2000, and there was no time to consolidate. This lack of stock market consolidation does not provide any good support for the market as it falls below the 768 level on the S&P 500. This could potentially mean a large drop (over years?) if the S&P 500 drops below 768.

The S&P 500 Level in late 1994 right before the S&P 500 rocketed upwards at an unsustainable rate is around 450.

This sets up the lower end of the long term bottom range of 450 to 500 on the S&P 500.

B. Reverting Back to 60 Year Trend Line Suggests Level around 400-500



Looking at the 60 Year Chart of the S&P 500, we notice the 60 Year Trend Line hits the S&P 500 level of around 400 at this time. If we look forward over time, this trend line would approach 450 to 500, which coincides with the predicted long term support level above.

C. Five Month Fibonacci Grid Suggests Bottom of 600



When we look at the five month chart, we place a Fibonacci Grid and align the top to a recent high (of around 1265), and align the 61.8% and 38.2% line to coincide with the recent trading range between 850 and 1010. The lower range of the Fibonacci Grid suggests a potential bottom.

This S&P 500 level is 600, setting the upper range of a longer term S&P 500 Bottom.

D. 60 Year Fibonacci Retracement: 50% = 770; 38.2% = 588

Early in 1950, the S&P 500 was around 17. At the top of the market, the S&P 500 reached around 1560.

If we use the Fibonacci Retracement Rule of 50%, that would lead to the S&P 500 Retracement of 770, which coincides with the recent major bottom of 768 that was achieved October 10, 2002, and very recently.

If we use the Fibonacci Retracement Rule of 38.2%, that would lead to the S&P 500 Retracement of 588, which is within the 450-600 range using previous methods of analysis.

E. Chartist Louise Yamada Opinion: 400 to 600

On a recent CNBC Fast Money episode, Chartists Louise Yamada predicted an S&P 500 bottom of 400 to 600. This coincides with the analysis so far.

F. Secular Bear Market, Cyclical Bull Market

Television Personal Financial Advisor Suze Orman predicted in 2004 that in 2000, we started a Secular Bear Market (long term Bear Market of around fifteen years), and around 2003, we started a cyclical Bull market (short term market lasting around two to four years), that would eventually end, and hit near the lows of 2002.

Her prediction was accurate.

If her prediction continues, we will continue the Bear Market until around the year 2015 or so.

G. Major Demographic Shift Ahead

In 2010, there will be a major demographic shift as the first Baby Boomers reach 65 years of age, and may retire and take more money out of the stock market. More Baby Boomers will do the same in the years following 2010.

This may put pressure on the U.S. stock market and may be in line with the long term Secular Bear Market theory starting in 2000 and ending around 2015.

Five Month S&P 500 Stock Chart

Sixteen Year S&P 500 Chart

Thursday, July 3, 2008

Expected Stock Market S&P 500 Bottom using Long Term (8 year) View and 50% Retracements



Many people are saying that the Stock Market (as represented by the S&P 500 index) is in Bear Market territory, being down over 20% from it's recent high of 1576 (today, the S&P 500 is at 1261. The annotated chart above is from March 2008, but it still shows important levels).

Where's the bottom?

In technical analysis (analyzing the stock charts), there's a school of thinking that uses Fibonacci Retracements. In nature and in the stock market, the ratios of 61.8%, 50% and 38.2% are important levels. If we take any uptrend or downtrend in the stock market, if we look at the retracement levels (the levels at 61.8%, 50% and 38.2%), these levels often coincide with resistance and support levels.

On March 24, 2000, the S&P 500 hit an intraday high of 1552.87. During that last bear market, the S&P 500 then lost almost 50% of it's value to an intraday low of 768.63 on October 10, 2002.

The most recent high today was set around with an intraday high of 1576 on October 11, 2007.

Over the last several months, the S&P 500 bounced nicely around the 1270 level, which coincides with the 38.2% retracement from the lows of 2002.

Now, it would appear that the S&P 500 could go lower. The 50% retracement from the 2002 S&P 500 lows would be 1172, and 1077 would be the 61.8% retracement.

Looking at the chart above, we also notice a lot of congestion from 2003 to 2006, in the range between 1077 to 1267. This is a good sign that we could find stronger support in this region.

Maybe 1077 could be a good lower target on the S&P 500.

In addition, many sources claim that the average bear market decline is 30%. If this is so, then a 30% decline from 1576 would give us an S&P index value of 1104, very close to the 1077 S&P 500 61.8% Fibonacci Retracement.

The S&P 500 longer term bottom looks to be around 1077 to 1172 based on the scenario above.

Of course, we can monitor the situation of the S&P 500 at each support and resistance level.

Today's S&P 500 Chart, Long Term View

Today's Three Year S&P 500 Chart

Original Article which used the Annotated Chart Above