Oct 7, 2011

Market Reversal Started

S&P500 did not break through the 50 period moving average several times after the big crash in AugustDuring the latest movement the index formed a double bottom, which is a technical confirmation of trend reversals. If this turns to be true, we will see roughly 10% rally to the resistance level 200 MA to 1280. This suggestion is supported by the formation of W-shape pattern at the double bottom. It usually indicates turning point of the markets. Another support for the upcoming rally is the divergence between the index and histogram of the MACD (Moving Average Convergence Divergence) indicator.

Fundamental concerns about Greek bankruptcy and European debt contagion still continue to worry investors and this has limited the market growthHowever, earnings season coming, with expectations on the positive side is expected to give direction to the markets. Eventual corporate outperformance is likely to support the formation of W-shape with S&P target of 1280.

S&P 500 W-shape projection
Chart Source: stockcharts.com
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