Monday, 29 July 2013

S&P 500 tests long term trend line resistance

The following weekly chart shows a trend line that I first saw in last week's edition of Peter Eliades' Stockmarket Cycles report. Wow. Looks to be hugely important. By the way, I never cease to be amazed by the charting and cyclical insights featured in Stockmarket Cycles. A must read for me.

The above chart is arithmetic scale, in contrast to all my recent S&P charts which have been log scale. The difference in chart scales is my (poor) excuse for not seeing the line with my own eyes. Once upon a time I used to regularly check charts in both scales, but unfortunately have lost the habit (*kicks self in backside*). Needless to say I will happily use charts of either scale in my analysis and trading, whichever is showing the neatest trend lines and trend channels.

I like to say that there are two sides to a trend line, meaning in this case that the market could be repelled by the above trend line and turn lower, or it could burst higher through the line. I think that a move through either last week's high or low will be a key indicator as to which of those options the market is taking.

If the bullish scenario unfolds with a break through last week's high, we may see the final blow off top scenario that I have described numerous times. For anyone who missed it, the following log scale weekly chart illustrates a possible megaphone top, where ideally a final rally would top at the upper trend line, around 1800. And yes, these are the same trend lines as shown on the above arithmetic scale chart - amazing the difference that chart scale can make!

Why a "final" rally? The following monthly chart supports the case that 1800 is likely in a key resistance zone. 1800 lies just beyond the illustrated resistance line at 1785, which is the level that the S&P would beat the 2007 high by the same percentage as it beat the 2002 low at the 2009 low. Until 1785-1800 or so is beaten, I am of the view that the S&P remains in a giant trading range, and will eventually be drawn back down toward the 2002 and 2009 lows.

Silver rallies from test of trend line support

Daily chart shown. Silver has today rallied from a test of short term trend line support. However until it beats last week's high the trend at this time frame is down. A break of today's low would likely clear the path to a retest of the June low.