Jun 22, 2011

S&P Technical Outlook

Recent rally raised questions is it sustainable. It is obvious that markets were oversold at June 16th bottom. Considering that and recent developments about European debt crisis and US interest outlook capital markets are still nervous and react sharply on every signal.
Using Elliot Wave Theory we can determine in which wave of the cycle we are. Close investigation of S&P500 index chart shows finished positive 5 wave upward cycle. Now we have finished A-wave - the first of the three corrective waves and forming positive B-wave. Each cycle is formed from 5 wave bull market and 3  waves bear. Current upward move is limited to the level of 50 MA around 1320 level, some 2% up. Of course brake above this resistance is possible if economy shows better than expected macro indicators. This would mean that we are again in bullish mode and economy is back on track.
S&P 500 Expected to Rebound
Chart source: stockcharts.com, Chart analysis: investink.net
Fail to brake 1320 level will form positive B-wave and start final negative C for the corrective cycle. In other words pattern formed is also known as “Head and shoulders”. It is reversal formation and further drop would be expected. The downside is limited to November 2010 top support lever around 1230 level. Last scenario is expected to break 200 moving average, considered to be long term trend line, which could mean entering extremely oversold area. Move least likely to occur.

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