[Chart Of The Week] Technical Analysis On The S&P500

JC Parets
October 31, 2016

You guys know that I consider the S&P500 to be just one index in just one country in just one asset class in the entire world. There is a lot more out there. And while this might be true, I would also argue that this one index is one of the more important ones that we need to be watching. It is a good representation of U.S. Stocks, since the Dow Jones Industrial Average is just 30 names, the Nasdaq is tech-heavy and the NYSE Composite has a lot of international exposure. One can argue that the Russell3000 is the best representation of the U.S. since it represents over 98% of all investable assets in U.S. equities, but there is no liquid asset to gain exposure to it.

So today we are breaking down the S&P500, setting price targets and defining our risk management levels:

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[hide_from visible_to="member"]Many of you reading this have been following my work for a long time. But for you newcomers, all of our upside objectives for the S&P500 were achieved in May of 2015. In addition to breadth weakening big time throughout the Spring last year, the S&P500 reached the 161.8% extension of the entire 2007-2009 crash. This was our upside target, and after last May there had been no reason to be long S&Ps, other than for short-term mean reversion trades.

SPXw

One of the reasons why I turned so bullish towards equities in early July, not just in the U.S. but globally, was because the S&P500 was finally able to break out above that key 2100 area that had been trouble since last May. The market clearly respects these key Fibonacci extension levels, so I think it would be irresponsible of us as market participants to ignore them. This is just 1 of a thousands of examples I can show you where the market reacts to 900 year old math (Click here to learn more about Fibonacci Analysis).

Looking shorter-term, here is that former resistance from last year that, so far, has held as support. This is the Polarity Principle 101. The question now is: Does this level hold? Or do we break down leaving all of that overhead supply trapped above former resistance?

SPXd

To me, the September lows are the line in the sand. If we're above that level, that means that momentum is still in a bullish range and prices are above support. I see no reason to be bearish in that environment. Price target-wise, 2335 is the 161.8% extension of the entire 2-year range from 2014 until this July. I think this is where we're going and I would be adding to long positions more aggressively if we can break out above the downtrend line from the August highs.

From a risk management standpoint, if the S&P500 breaks below the September lows and momentum hits oversold conditions, this is a problem for the bull case over an intermediate-term timeframe. It would argue that, at the very least, further consolidation will be necessary before we can have a more substantial move higher.

Right here, we're above that key support, but below the downtrend line from the August highs. I would put this in, "no-man's land", but with a bullish bias based on the weight of the evidence both in the U.S. and globally. As the data comes in, we'll adjust our approach accordingly: either more bearish or more bullish as support or resistance gets broken.

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Tags: $SPX $ES_F $SPY $DJIA $QQQ $NYA $RUA

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