Carl Spackler's  Instablog

In one of my previous posts, I looked at the long term charts and found the following:

What do we see from this chart can be summed up as follows:

• The current 200 month ESA is at 1000.49
• The current 50 month ESA is at 1177.12
• The current 12 month ESA is at 974.17
• The current down trend line is at S&P 1009
• The S&P is currently below the 12, 50, and 200 month ESA's
• The 50 month ESA is below the 200 month ESA (negative golden cross)
• The 12 month ESA just went below the 200 month ESA

There is way too much resistance between S&P 974 and 1009.  the 200 month MA, 12 mo MA will be too much to overcome.  We have grown very tired of waiting for this trendline to break, but the excessive upside movement just sets up a very big downtrend to come.  The very long term charts are extremely negative right now and those who are short-sighted will most certainly lose big.  Expect this market to puch to the near S&P 1000 mark, and there is we will finally go short.  We have waited for a trendline break as an entry point, but the market could never pierce it, but as it falls into the 975-1000 area, we have a clear spot in which to place our shorts.   

We have seen some intra day lows below 880, but the lowest close we have seen has been only a few fractions below 880 - not a clear break yet. The trend and tone of the market has changed, and I beleive we are setting up for a run back to S&P 900 and then the market will hopefully have exhausted enough buyers to pierce through the 880 support level.  Gutsy traders could sell short as we near S&P 900 (at a minimum above 892).  A strong down move, however, is not in place until we see a good break and close below the 880 support. 

Here we stil on the proverbial edge of the cliff - S&P 880 is a very big support.  I would not be surprised to see this level hold one last time, but we have tested it too many times and eventually the market forces win.  The long term trend still points down and eventually the long term trend wins.  If we see a good break here, it will be time to sell the market short.  Our first stop should be the 840 area, so my probable scenario if it breaks is as follows:

1. We break 880 and we fall to the 840-845 area where a 3880day counter rally occurs back to the 880 level
    
2. Any advance back above 880 soon fails and the market resumes falling down to the 800 level.
    
3. Again the counter rally will ensue and return us to the 820 area and then will will slide to a temporary holding area around 770.
    
4. Total slide should take 3-4 weeks

As a trader, we love volatility and there will be multiple waves to this move if we see an initial break from 880.  Otherwise I fear that we will become entangled in a very unprofitable and trendless market.  Long term charts point to the resumption in the move down, and at this point, there is little upside to this market,  My prognosis is a move to 770, but I leave also believe that this could be the very nasty final move down to S&P 550.