Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

More Thoughts on the Market 1/29/2009

Back on November 30, 2008, I tried my hand at something other than natural gas and UNG in "Some Notes About Observed Market Activity".

With the apparent correction underway, I thought it might be time to take another look and see what the charts might tell us (or at least how a new guy like me might divine one or more future possibilities, to be more accurate).

This article will be much shorter, and maybe less useful, but I did want to at least offer them up for folks that might find it useful.

Before proceeding, I want to thank all those that commented on the previous article and furthered my education in this arcane art.

Since that previous article, the trend lines forming the rising wedge have become obsolete. I had a three-year daily I had been working with, so I updated it and took a look. I know I should have used a weekly chart for this time-frame. But I didn't feel like starting over.

Here's the prior chart, for a quick review.

(Click to enlarge)

Prior S&P From 11/30/2009 Instablog "Some Notes About Observed Market Activity"

When you view the new chart, the things that I feel you should notice are:

  • The trading pattern *after* the break *above* the top yellow line and how similar in many ways it is to the uptrend beginning at the vertical white line at the left of the blue up-channel lines, after doing some consolidation. Could this portend entry into another uptrend of 3%-7% up and down moves on a monthly basis? I can't say, but I'm going to be alert for behavior similar to what was highlighted in the other article.
  • The first three support levels denoted by the horizontal yellow lines. There are two more nearby support levels below these which I've not marked, but you can easily identify them. My thinking is that if the market is to do more than the 10% correction (Freya suggested 20%), it's going to need some help in the form of some absolutely horrible news out of Washington or elsewhere. 20% down is certainly reasonable as it leads to one of the oft noted critical levels around $980. This is two support levels down from the bottom yellow line. If we get below these, it's unspeakable, so I won't.
  • The upward trend denoted by the parallel blue lines (constructed based on a suggestion from Freya - thanks). Since the support line of this channel is about to intersect the $1070 support line (middle yellow line) on or about 2/14, I think this will be a key forecasting point. If the S&P is below that intersection then I think we're headed to $1030 or so, which would be 11% off the $1150 high, about 3.7% down from the Friday 1/29 close of $1074.
  • The downward sloping straight red line - three year trend. Note that it will also intersect the $1030 support line around 2/14 - another critical support point I think. Again, this is around the 10% correction point that folks have been considering.
  • The 200 day SMA is at $1013 and will soon intersect the 3 year downtrend line (red line) and the bottom support line at $1030. My best guess is that this intersect will also occur around 2/14, or maybe a little after. But I think it will hit then as the average is going parabolic (but only very slightly) at this point.
(Click to enlarge)
Partial 3 Year S&P500 Daily 9/24/2009 - 1/29/2010

My summary thought is that around 2/14 is a very critical juncture. 10% correction, 3 year trend, 200 day SMA and a support are all meeting for coffee and to discuss with the market whether or not to put the big hurt on us.

Note that the top yellow support of ~$1070 is untested. So Monday's behavior may be important. It may not be that important if it breaks that as long as the blue support line is not violated more than a day or two.

When comparing the monthly cyclic patterns note that there was a down move after an initial run up before the monthly cycles began. We may be observing a miniature version of this right now. I don't know yet, but I'm watching.

Update 2/1: we got good news in ISM and foreign production, the dollar weakened a bit, Obama is making noises as if he will actually be concerned with deficits, it seems that healthcare reform is going to receive at least a good re-working before anything of major destructive value occurs and we had gold, metals and market all go up on the same day. Somewhat unusual and surprisingly pleasant.

My gut feeling is that we won't see much more down without some really bad vibes to offset the good news and overcome the critical inflection point(s) that should occur on or around 2/14. If this holds, then I think we start some kind of uptrend moving towards the $1100 or greater area. Many pundits have been calling for $1200 on the S&P500 by year end.

It is somewhat disturbing that with the conditions today we didn't come closer to the much-desired $1100 S&P500 level. I'm thinking that folks are minimizing risk by taking profits and that is holding the market in check. I think that this may be overcome if the things I've focused on hold.

And no "black swans" or major disruptive catalysts appear.

I welcome all constructive views and appreciate you taking the time to help me along.


Disclosure: long some bio-science, some capital equipment, some gold miners and a couple speculative energy stocks.