Friday, October 19, 2012

SPX and INDU: Key Levels and Next Targets

The intermediate outlook is materially unchanged and continues its bullish bias.  The short-term outlook has become slightly ambiguous, but suggests a minor top may be near.  It is currently expected that this will only be a short-term top, and that new swing highs will follow.

I've loaded up the hourly chart of the S&P 500 (SPX -- shown below) with virtually all the relevant info, so I won't retype every data point here.  The bottom line is that a correction lower could be due as soon as today's session, though a bit more upside would be within the margin of error (the second chart may help with this).  In either case, if the next decline is indeed the expected small second wave lower (blue (ii)), then ideally it would be a bit scary and cause a fair number of traders to turn bearish.  Conversely, if it does not correct as deeply as shown, that would actually stretch the wave (iii) targets even higher.

I'm viewing 1438-1439 as the key bearish pivot, and sustained trade beneath that level would dictate that more bearish intermediate outlooks be considered.  Ideally, if this is to remain a correction to an uptrend, this wave should not break the lower black trend line that connects blue (2) and blue (4) -- so that occurrence would act as a second subsequent warning if 1438-1439 were to be broken.  Beyond that, trade beneath 1425 would put the bears in control.  The chart annotations pretty well detail everything I'm watching, and my expectations, at the moment.

The 5-minute SPX chart looks at the short-term trend-channel, which is still intact.  The short-term trend remains up as long as it holds, but a breakdown here would be the first warning that a correction was unfolding.  The chart also notes the potential of a small head and shoulders top, along with the classic measured target if prices were to break down through the dashed red neckline.

The Dow Jones Industrials (INDU) is in essentially the same position as SPX, and it's also unclear here if there's a bit more upside due before the correction.  Note that both hourly RSI (SPX chart above) and 30-minute RSI (INDU below) are showing bearish divergences.  (continued, next page...)

In conclusion, unless the bears have a huge surprise up their sleeves, it's expected that the market will continue higher over the intermediate term.  The short-term suggests a correction lower is due to begin in the next couple sessions, and a breakdown of the channel on the 5-minute chart would be first warning; while trade beneath SPX 1452 would suggest that correction had begun.  Trade safe.  

1 comment:

  1. Hi Pretzel,
    I just saw that you changed your forum rules for viewing (yes, I was a little lazy and would just read what others had to say and didn't bother to create an account - sorry). Anyways, I would like to register onto the forums as I used to post on occasion here - very infrequently since January before you closed your comments section down. 
    I'll be using the same nickname.