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

S&P 500 Trend Analysis - Sep. 5, 2011

|Includes: DIA, SPDR S&P 500 Trust ETF (SPY)
It was a mixed week for the major markets. During the week, the Dow Jones Industrial Average dropped -44.28 points or -0.39%. The Standard & Poor's 500 Index dropped -2.83 points or -0.24%, while the NASDAQ Composite climbed 0.48 points or 0.02%.

The Standard & Poor's 500 Index (^GSPC) closed at 1173.97 on Friday, September 02, 2011. It was trading at the average weekly trading volume. Read More ...

S&P 500 index long-term downtrend is forming a three wave?s structure (See Figure 1). The first wave down (NYSE:A) had started on October 11, 2007 at 1576.09 and lost 909.30 points, or 57.69%, in 73 weeks and reached 666.79 on March 6, 2009. The second wave (NYSE:B) gained 703.79 points, or more than 105%, in 26 month and reached 1370.58 on May 2, 2011. Wave B made a lower high; it is a bearish signal. The third wave down (NYSE:C) is in progress now.
S&P 500 long-term trend
Technical Stock Market Timing System
Figure 1

The recent rally had started on August 9th, 2011 at 1101.54 and reached 1,230.71 on August 31st, 2011. It is a sub wave of a long-term C wave and it has a three wave?s structure as well (See Figure 3). Several technical indicators suggest that it was a bearish rally:
  • Usually when the price moves below 200 day Moving Average, the next up wave at least retests the 200 day MA as a new resistance level. The Bullish rally usually breaks this resistance level and the price moves above the 200 day MA level. The current rally is weak and it was not even able to reach the 200 day MA.
  • Daily Lane's Stochastic %D line is about to crossover with %k line. It is usually considered as a sell signal.
  • Sub wave C?s high is only 1.8% higher than sub wave A?s high, while daily Lane's Stochastic has raised substantially and has moved into an overbought area. This divergence is considered as a bearish signal.
  • The rally could not reach the Upper Bollinger Band, and this is a bearish indicator.
All the above signals may indicate that the rally might be over, and a new sub wave down has started. S&P 500 index may break the support around 1100 and move down to the next support area around 1000 - 950.
S&P 500 medium-term trend
Technical Stock Market Timing System

Figure 2