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S&P 500 Mid Month Review

by David G. Hawkins

Intermediate Term - Weekly Bars Chart

The first chart here is the weekly bars chart. In my last review of this chart on Jan. 15th, I noted that price was in the midst of a cluster of resistances, and ". . . price needs to break out above this cluster of resistance and close above Monthly R1 before we can be sure that an uptrend is still in progress." Well, we can see now that price certainly did make that break-out! Price has shot up in a very steep straight line since the latter part of December. In the next chart here, the daily bars, I'll examine this uptrend in detail.

We see that price now is very close to the 2011 high and to the 76.4% Fibonacci retracement line from the monthly bars chart (see my last post). Last evening on the Nightly Business Report TV show on PBS, I heard a technical analyst pontificate about how reaching the 2011 high will cause price to consolidate here for a few months. He was quite certain about this. I'm not so certain. This uptrend is very strong and showing no signs yet of pausing. Also, look at the upper pane of this chart, the so-called Money Flow Index, which is really the volume weighted RSI. It usually rolls over from an overbought condition many weeks before price slows down, and right now that index has just attained overbought status, nowhere near showing a negative divergence as it did at the 2011 top. So, most likely, I think this trend still has legs.

Short Term - Daily Bars Chart

The second chart here is the daily bars chart, where I dissect this powerful uptrend we're in now. First, go back and look this chart as shown in my last post here, Feb. 1st. There I showed that a TopFinder that was fit to the minor pullback in mid January had just about ended. Consolidation was to be expected, and indeed a consolidation was already in progress. The updated chart here shows that the hammer candle on Jan. 30th nailed the low of that consolidation, from which price continued robustly upward.

I have fit a new TopFinder to that Jan. 30th low (marked "Fit"). It has a "Duration" of 20 million shares of cumulative volume, and is currently about 77% complete. The projected horizontal location of the end of this TopFinder is shown by the dashed vertical line. The blue trendline is an extrapolation of the linear regression fit to this trend, and at the projected end of the TopFinder, its level is 1400. This is NOT a prediction that price will go to 1400 at the TopFinder's end, since price usually starts to roll off considerably as it approaches the end. You may think of 1400 as an upper limit to what the price will be at the end.

This chart is really a textbook example of a TopFinder in action. The uptrend is accelerated since price is moving along far above S1, so the application of a TopFinder is very appropriate. Also, notice that I've put in the hierarchy of support curves as it now exists - S1, S2(calibrated) and S3. Once the current short consolidation of the past week ends and price moves up again, I'll launch S4 from the low of this consolidation. Typically, an accelerated uptrend spawns S curves thru S4 before it ends. So, this uptrend is percolating along in classic fashion.

I don't do predictions. What's presented here is not a prediction that this uptrend will continue to the projected end of the TopFinder. Rather, what I'm showing is that current price action is consistent with that of an uptrend that is 77% complete. Past experience shows that the projection has a higher probability of completing than not. But of course nothing in the market is certain, so no predictions can be made.