Updated Possible $SPX Scenario (July 31, 2007)

The global markets seem to be selling off at a good rate, and the U.S. futures are down big. This could be an important day.

There is an updated $SPX (S&P 500 Index) chart above.

I expect some sort of a bottom at around 1437, which is the 61.8% retracement of the most recent year long run. This also coincides with horizontal support at around 1437-1440, so this would be a good support area. This might be a final capitulation.

Many different indicators such as the number of S&P 500 stocks above 50 day moving average are very low (18% right now), which suggests we are at, or near, at least a medium term bottom.

I then expect a bounce to the 50% to 38.2% retracement area from 1459 to 1482. 1482 might more likely target.

Since V-bottoms are not stable, I expect the market to re-test its lows of around 1437. At that point, $SPX could:
1. Form a double bottom as support holds.
2. Start a new leg down, which would be bearish.

The market may move very quickly and hit 1437 intraday, and even work its way close to the 50% retracement of 1459 all within a day.

This scenario is very similar to a scenario I came up with on June 7, 2007.
The June 7, 2007 Possible ABC Correction Scenario.

Today's Chart

Prediction: ABC Correction on S&P 500 (6/7/07)

Prediction: Current S&P 500 Market will Correct and undergo an ABC Correction. Current resistance is the 50 day moving average at 1487. But based on market behavior, this resistance might not hold. There is a lot of buying volume between 1430 and 1460, and those who bought during that time might get worried and start taking profits now or on any rally.

The 50 day moving average should get taken out, and maybe hesitate at the 38.2% retracement price of 1477. However, better support will probably be at around 1457-1460 since previous buyers used to be at that level. This is the A-wave.

Buyers at the 1460 bring the price up back to the 38.2% retracement price of 1477, the B wave.

Then we finally get the C wave, and go down all the way to the 61.8% retracement level at 1437-1440. Sellers will be exhausted, and there is previous buying interest at these levels and we near the bottom.

In addition, I'll be watching another indicator, the $SPXA50R, the percent of S&P 500 stocks that are ABOVE (chart annotation says below. The chart annotation is wrong) the 50 day moving average. Previous history has shown that when this amount goes below around 30%, we are near the bottom. We are not there yet.

I used the tools at StockCharts.com

The idea of using $SPXA50R is thanks to Matthew Frailey at www.breakpointtrades.com .