Stock Market (S&P 500) Breakdown to New Levels Has Begun

For the last three to four months, the Stock Market, as represented by the S&P 500 has been trading in a symmetrical triangle pattern. This blog has been saying that breakout would occur soon, sometime during February.

On Tuesday, February 17, 2009, the S&P 500 has finally broken down from the symmetrical triangle and is starting a new downtrend.



There is major resistance at around the 740 to 760 level from the November 2008 lows of 741, and the major low of 768 during the last Bear Market from 2000 - 2002.



While the stock market could bounce off these lows again, based on the breakout from the symmetrical triangle pattern, we could hit a low of 558 on the S&P 500. [Since the maximum range of the previous triangle is 267 (1007 - 740 = 267), we apply this to the breakout point of 825 to come up with a downside target of 558 (825 - 267 = 558)]

This matches this blog's analysis of a S&P 500 bottom of 450 to 600.

Notice that if we break down below the major S&P 500 bottom of 740 to 768 on the S&P 500 set in 2002 and 2008, there is not much support below:



We do appear to be in the middle of a long term secular bear market that started in 2000 and will end around 2016.

Today's Chart of S&P 500

Stock Market (S&P 500) Breakout Soon! We are near end of Symmetric Triangle

The Stock Market, as represented by the S&P 500 ($SPX), is very near the end of a symmetrical triangle (see chart above).

The Market has gone back and forth inside of this triangle, and the market is consolidating the move from the all time highs. The end of the triangle converges in March, and because there is often a breakout around 1/2 to 3/4s of the pattern, it is about time the market breaks out.

According to Stockcharts.com and Edwards and Magee, "roughly 75% of symmetrical triangles are continuation patterns and the rest mark reversals." Since the previous trend from the all time highs was down, the continuation means further downside.

Previously, this blog analyzed the potential depth of the decline, and we estimated that the downside target is 600 on the S&P 500, a drop of around 27% from here (S&P 500 value of 827). This matches another analysis by this blog which suggested that the long term S&P 500 bottom is from 450 to 600.


Today's S&P 500 Chart

HMSY 52 Week High; ATVI - DJ Hero Game; S&P 500 - Breakout Near

1. HMSY (HMS Holdings) hit 52 week high
   
   HMS Holdings (HMSY), a small cap company that takes advantage of waste in Government Health care Benefits, has just hit a 52 week high gaining 3.5% on Wednesday, February 4 to $33.13. This stock is technically strong and has good fundamentals as well.
   
   
2. ATVI (Activision-Blizzard) to release DJ Hero By End of Year
   
   Activision-Blizzard, Makers of the popular Guitar Hero, Call of Duty and World of Warcraft, announced that the game "DJ Hero" will be released before the end of the year, "and will include turntable-based controllers which gamers can use to spin and mix songs."
   
   
3. S&P 500 is still in converging triangle pattern; Breakout is near
   
   The S&P 500 is still in a converging triangle pattern. The end of the triangle appears to be before the end of March. Typically, breakouts (either up or down) will occur before the end of the triangle.
   
   Many speculate that these triangles are more likely downside patterns than upside patterns.
   
   This blog examined this triangle.
   
   The Daily Markets Blog agrees with The Tech Farm Blog's assessment.