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S&P 500 – Pervasive Volatility Infecting All Timeframes

by David G. Hawkins

This is my month-end review of the S&P 500, where I analyze the monthly bars chart, as well as the weekly and daily ones.

Over the last few months, the turmoil in the Eurozone, along with occasional economic news in the U. S., both positive and negative, have roiled the markets with unusually heavy volatility.  As this goes on, the volatility, which starts out being evident on the daily bars chart, percolates up into the longer timeframes, becoming noticeable on the weekly and now even the monthly bar charts as shown below here.  (At the end of this month, which will be the end of the quarter, I’ll show the quarterly bars chart, and then we’ll see if volatility has gotten that far up, or whether some inference of very long term trend may still be visible there.)  Under these conditions, it has become meaningless to try to infer direction of the market based on current charts, so I will no longer even try to do that until volatility calms down and the fog clears.

Under these circumstances, what if anything can Midas analysis do for us?  Remarkably, what is still visible amidst all this chaos, is that when the market spikes and abruptly turns around, as it has been doing all too often these days and weeks and months, we can still identify the Midas S/R levels at which these turns take place.  We can’t predict in advance at which level the turn will happen, but price does pick out one of these levels for its turn virtually every time.  Ahead of time, we try to populate our charts with these levels, both above and below the current price, so we can see which one price chooses for its turn.  Sometimes, though, it takes some back-analysis after a turn to identify the curve at which it happened.  This is the spirit in which I am providing the analyses below here.

Long Term – monthly bars chart

The first chart here is the monthly bars chart updated through the end of November.  Comparing this to the chart I showed at the end of last month, you’ll see that I’ve done a calibration of the S2 curve (bold green), which I should’ve done back then, now calling it S2 Cal. The calibration is done at the July 2010 low, as marked by the little green arrow.  (The procedure for calibrating a Midas S/R curve is so important that I devoted a whole chapter to it in our book, q.v.)  This means that, going forward from July 2010, this curve is very significant.  Now we see that last month’s price bar only slightly perforated this curve before jumping up sharply.  So, I think it’s valid to observe that this curve did provide support last month.

Now, look at the downturn that started at the peak last May.  I’ve launched R1 from that point.  Two months later, there was a small pullback in price, so I’ve started R2 from that point, and we see that R2 perfectly captured (resisted) the top of October’s bar.  November was fully contained within October’s range.  So, on this timeframe, the volatility of the market is contained in this very wide trading range between S2 Cal. and R2.  Nothing more can be said in this timeframe until price eventually breaks out of this range.

Intermediate Term – weekly bars chart

The second chart here is the weekly bars chart, updated thru yesterday.  To try to get some clarity around the volatility here, I’ve applied a technique that I describe in our book in the section called, “Special Starting Points – Left Side”, q.v.  (p. 50).  This produces the two bold curves here, “Left R1″ and “Left S1″.  So far, these two curves are containing November’s volatility.

Short Term – daily bars chart

The last chart here is the daily bars chart, updated thru yesterday.  We see that the volatility of the last few weeks is being contained by R1 and the level of the “Left S1″ curve from the weekly bars chart. The blue bars and dashed vertical line illustrate the application of a technique developed by Richard W. Arms Jr. called “Price Projection”, which I describe at length in our book in the first part of chapter 7, q.v.  On our daily bars chart here, it is showing that, starting Nov. 8, there is downward pressure on price, which won’t be relieved until cumulative volume (horizontal motion) reaches the dashed vertical line.