Trading the Largest 16 Year Stock Market Trading Range: Major Market Top or Breakout

The U.S. Stock Market as represented by the S&P 500 Index is in a major 16 Year Trading Range from 1997 to 2012.

The Low of the trading range is around 666, which was reached January 2009.  The S&P 500 last reached that level around the 1996-1997 timeframe.

The High of the Trading Range reached a level of 1576 on October 2007.

The S&P 500 is currently trading at 1444, around 9% below the all time highs.

There is Major Stock Market Resistance around the 1550-1576 level.

One Trading Range Strategy could be:
1. Take Profits or Sell the S&P 500 between here and the 1550 to 1576 level.

2. If the S&P 500 has a solid breakout past 1576 with confirmation, Buy the S&P 500 with a Stop Near Support (around 1576).

3. If the S&P 500 reaches near the bottom of the trading range channel (a drop of 54% from here (1444)), Buy the S&P 500 (or cover the S&P 500 Short Position)

4. If the S&P 500 breaks down below the bottom of the trading range channel (below 666) with confirmation, Sell the S&P 500, with a Stop Near Resistance (666).

So even if the S&P 500 stays within the Large Trading Channel, that could still mean very large drops (or rallies) in the Stock Market as represented by the S&P 500.

Stock Market Major Triple Top: Big Drop Ahead? Target S&P 600.

The U.S. Stock Market as measured by the S&P 500 index is at 1429 (Monday, September 10, 2012), just 10% below the all time closing high of around 1565 on October 2007.

The S&P 500 is nearing very strong overhead resistance, and it couldn't surpass it in 2000 (top #1) and then again in 2007 (top #2) when it could not surpass the all time high of 1565.

What if S&P 500 Can't Break Resistance: Target: S&P Level of 600, a drop of 58% from here.

There is a very bearish technical pattern called the "Triple Top Reversal" 

The pattern is more than establishing three peaks (and the stock market price not exceeding the last peak).  It also requires the stock pattern to reach the Confirmation Line (currently around S&P 700), which marks the previous valleys in the Triple Top pattern.  Some websites and books say the average decline from a triple top reversal pattern is around 15-20% below the Confirmation Line.

But since the time between Major peaks is more than 6 months (many years in the diagram above), the average drop is less reliable, but the pattern does mark a Major Market top.

It is possible if this scenario takes place, this could mean that the market could suffer many more years of difficulty (with stock market crashes and violent rallies).

The Fundamentals and Demographics support this theory:

All around the world, there is a global debt crisis, with countries planning to default on their debt.  The United States now has $16 Trillion in National Debt, which is more than 100% of GDP (Gross Domestic Product), and currently, there is no sign that the U.S. can control their finances, spending, and revenue.  This number also does not include $62 Trillion in Unfunded Liabilities or Promises to pay (which includes Social Security and Medicare).

The large Baby Boomer demographic is retiring and they will be selling their assets, and also, they will be claiming benefits such as Social Security, Medicaid and Medicare.  The younger generations are supposed to help pick up the slack, but there is not enough to do that, and there is high unemployment among the young adults, and many people are riddled with high debt, underwater mortgages, and ever increasing college tuition.

The Bond rating Agencies, in 2011, for the first time ever, downgraded the U.S. Creditworthiness.

Based on all this (and more), the U.S. Market might be headed towards another lost decade (2000 to 2020)?

How far can this (Bear Market) S&P 500 Stock Market Rally Go?

On March 10, 2009, the S&P 500 went up 6.37%. Some pundits are calling for a bottom, but many see this as merely a Bear Market Rally.

How far can this rally go?



First major candidate is S&P 500 level of 740 to 760. This was the previous low held late in 2008, and is also the level that held in the Bear Market Bottom of 2000-2002.

Another candidate is the breakout point off a symmetrical triangle pattern.

Previously, this blog demonstrated that the S&P 500 recently broke down from a symmetrical triangle.

According to stockcharts.com:

Prices sometimes return to the breakout point of apex on a reaction move before resuming in the direction of the breakout. This return can offer a second chance to participate with a better reward to risk ratio. Potential reward price targets found by measurement and parallel trend line extension are only meant to act as rough guidelines. Technical analysis is dynamic and ongoing assessment is required.

It is possible that the rally could continue to this breakout (breakdown) point of around 825 on the S&P 500.

The 50 day moving average is very close to the 825 breakdown point on the S&P 500.

Overextended from the 200 Day Moving Average

The S&P 500 is also very overextended underneath the 200 Day Moving Average. This suggests that the rally could have some room, or go sideways long enough for the 200 Day Moving Average to catch up.

Today's Stock Chart of the S&P 500

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

S&P 500 Trendline, Support and Resistance after Big Drop Today

The S&P 500 ($SPX) went down 38.82 points (-2.94%) to close at 1283.15.

Next support levels are the important 1270 and 1219 levels. (See the horizontal blue lines in chart above). The stock market could bounce on these support levels, or else these support levels could break and then we find new support levels and resistance levels.

Looking at the three year trend line (the blue diagonal trend line), we notice that that from 2005-2008, the blue diagonal trend line was support, establishing a trend. However, in 2008, we notice that the S&P 500 broke down below this trend line and remains below the trendline.

In chart analysis (also known as technical analysis), the usual rule is that support levels which have been breached now become resistance.

So now, the long three year trend line is the upper resistance of the S&P 500.

Let us first see how the S&P 500 behaves at the 1270 level, the first support level.

Today's Stock Chart

S&P 500 Still in Trading Range

The S&P 500 still appears to be in a trading range with 1270 on the S&P as support, and currently, resistance at the 50 day moving average of 1338. The S&P 500 is currently at 1315.

If the S&P 500 breaks through the 50 day moving average with volume and with good follow through days, next resistance is around 1400.

But until then, the US market is in a trading range (just right below the 50 day moving average resistance).

Today's S&P 500 Chart

US Stock Market and S&P 500 near short term resistance

This blog previously posted a breakdown scenario, and pointed out potential resistance areas.

Right now, the S&P 500 has support at 1270, and resistance at around the 1330-1340 level (based on 50% retracement, as well as other resistance levels). The market, currently at 1329 on the S&P 500, is also very near the 50 day moving average, which is currently at 1345.

If the S&P 500 tests resistance and fails, we could potentially re-test 1270 on the downside, and possibly breakdown some more, as we speculated.

However, if the market can sustain some strong days and have good follow through, breaking through the 1330-1340 levels, and break through the 50 day moving average, we have a chance for a good rally.

But the trend would still be down (based on the S&P 500 remaining below the 200 day moving average) and I don't think there is enough strength to break above the 200 day moving average right now.

Here are two Previous Charts on Resistance Levels (2 weeks ago):





Today's Chart

We will have a Volatile Meandering Trading Range Stock Market in 2008

Are you experiencing a wild roller coaster ride in the US Stock Market in 2008? It is not over yet.

Near the end of June 2008, the S&P 500 ($SPX) formed an intermediate bottom of around 1270. As expected (this blog wrote about the re-tracement), the S&P 500 had a 38.2% to 50% Fibonacci retracement rally to around 1400. The re-test of 1270 is currently expected.

At that point, the S&P 500 could pass or fail. If it fails, we could establish new 52 week lows and go down to 1220. Or, the S&P 500 could pass and bounce off support of 1270. Potentially, during a bottoming process, the S&P 500 could re-test 1270 several times.

Depending on how things go, the S&P 500 could break resistance at about 1400 to 1424 and form a new higher trading range.

Whether up or down, the market in 2008 is expected to be a meandering, trading range bound market, with a possibility of even more breakdowns below 1270 on the S&P 500.

Today's Chart

S&P 500 To Remain in Trading Range? (August 7, 2007)

We've had quite some volatility recently. The Bollinger Band width of the S&P 500 ($SPX) is at a very high 156! I don't expect this kind of volatility to sustain itself. I estimate that the Bollinger Band Width will decrease, and the overall volatility will decrease for a while.

This means that the $SPX will most likely end up in a trading range, giving the market time to consolidate. On the low end, we can set 1427 as the support. On the upper end, we can set resistance to around 1492. This coincides with multiple attempts of the $SPX to break through it. It also is the 50% re-tracement from the recent July 2007 correction. If we have a stronger rally, we may reach the 61.8% retracement of the July 2007 correction of 1507.

From there, we could either break resistance and breakout of the trading range, or break support, and breakout to the downside.

Today's Chart of S&P 500 ($SPX)

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

Updates to $SPX resistance level for rally (Aug. 2, 2007)

The Wednesday, August 1, intraday reversal of $SPX after hitting a low of 1439 combined with very oversold conditions are some reasons why we might get a more sustained rally.

Based on Fibonacci retracements from the recent highs (1555) to the recent low of 1439, the rally might go up to either 38.2% retracement, 50% retracement, or 61.8% retracement which would be 1484, 1497, or 1511 if the rally is really powerful. 1497 seems like a reasonable resistance level in the $SPX.

As I mentioned earlier, I expect a re-test of the $SPX lows from around 1437-1440.

From there:
1. $SPX could bounce off support and form a good double bottom.
2. $SPX could break through support and start new leg down.

This is a partner piece to the previous chart analysis.

Today's Chart

Current Support Levels on S&P 500 (July 26, 2007)

The S&P 500 ($SPX) seems to be lining up perfectly with support and resistance. $SPX is now at 1482. There's resistance at around 1486. Support levels appears to be at 1464 (today, the $SPX nicely bounced off this support), and if it gets worse, we have the 200 day moving average at around 1447.

Don't be surprised if $SPX re-tests 1464 and decides which direction it really wants to take.

To look at the charts in another way, see this article on the $SPXA50R and $SPXA200R bottom technical indicators.

If we do break down below 1464, we may yet have a possible ABC Correction (mentioned in June 2007).

Stock Chart: AMTD, Ameritrade, Nice Turnaround (June 18, 2007)

Ameritrade ( AMTD ), has come back nicely after a 1 year downtrend. We recently see the Golden Cross, where the 50 day Moving Average goes above the 200 day Moving Average. The stock also broke above the $19.69 resistance, and the stock is both above the 50 day and 200 day moving average. The turnaround looks intact, though some might argue that the stock may be overextended above the 50 day and 200 day moving average.

To check the status of AMTD on a daily basis, here's a specially formulated stock chart of AMTD.

Turnaround Stock Patterns

If you've been following this blog , you may have noticed that there are many other stocks with similar turnaround patterns. The general idea is that you can draw a downtrend line on the a semi-log chart pattern and see if there is a breakout on good volume. It would also be nice if this breakout coincides with the stock going above either the 50 or 200 day moving average.

Yes, you can't always catch the optimal buy point, but you can still buy a stock if it remains in an uptrend, and if it is above both the 50 and 200 day moving average.

Other Stock Examples

1. GLW (Corning) Chart

2. DELL (Dell) Chart

3. BTU (Peabody Energy) Chart, a Coal Company.

Stock Chart: DELL, Comeback Story, June 13, 2007

Dell (DELL) appears to be coming back. The stock has recently cleared a 2 year downtrend. The stock is currently above both its 50 and 200 day moving average, and recently, the 50 day moving average crossed above the 200 day moving average, a bullish sign.

It is approaching resistance at the $27.89 level, and most likely stronger resistance around the $30 level (you can see greater congestion and selling volume there).

If the stock can form a nice handle on low volume, this may setup a nice base off of a bullish cup and handle formation (December 2006 to Present), and the stock could breakout on good volume on its way up. This is the optimistic view. Of course, the stock could behave very differently at resistance levels, and the stock could fail and go beneath the 50 day moving average.

Current S&P 500 Correction (June 7, 2007)

The US Stock Market seems to be in correction mode. The S&P 500 Index, through the $SPX index, appears to be just above the 50 day moving average. The way the index has behaved, I wouldn't be surprised if the stocks go below the 50 day moving average.

Some support zones:
1487: 50 day moving average.
1476: 38.2% Retracement (using Fibonacci Grid)
1457: 50% Retracement (using Fibonacci Grid)

I would not be surprised if the "correction" tests some of these levels and bounce at least once off one of these resistance levels.

(I used the tools at StockCharts.com )

NYX Stock in a Holding Pattern (June 6, 2007)

The New York Stock Exchange-Euronext Stock seems to be in a holding pattern. The multi year uptrend remains intact, but there has also been a 7 month downtrend, forming a symmetrical triangle. With this pattern, a stock normally trades within this triangle, and near the end, the stock may break out (up or down) on good volume. We can determine which way to trade/invest based on the direction of this breakout.

Currently, stock is stuck between support at around $79 and resistance at the 50 and 200 day moving average above. The stock is also being restrained by the symmetrical triangle described in the chart.

In the lower indicator window of the chart, there is a Bollinger Band Width indicator. Based on previous history, when the Bollinger Band Width is 5 or lower (on this stock), the stock normally has a large change in price (either up or down). Right now, Bollinger Band Width is around 6. So we are almost there.

Overall, NYX is in a holding pattern, but a big move to the upside or downside could be coming within the near to intermediate term future.

FCX, Freeport McMoran initial resistance

Freeport McMoran (FCX) is breaking out. When a stock is breaking out (with no prior history at that level) it's not obvious finding a resistance level. I am using a Fibonacci Estimation Method to determine initial resistance.

Based on this, looks like FCX might have initial resistance (and go sideways) at $83.