S&P 500 Index (SPX) Chart Analysis
Last week we wrote:
"...After a down week, the world markets appeared to have crumbled on Friday, and it looked like the U.S. markets would open with huge losses, possibly losses indicating a crash. Futures were limit down and trading in them had been halted. If the lows indicated by the futures were reached, we would be in a new leg down as all support levels, created in the last three volatile weeks (however tenuous these support levels are), would have been decisively broken."
This week:
After a good start to the week, and a rally on Tuesday when a new president was elected, the financial markets suffered a substantial two day selloff, followed by a rally on Friday to end the week.
We again have three charts below; a daily and weekly chart for the S&P 500 Index – SPX plus a weekly chart for the CBOE Volatility Index - VIX.
All of the charts continue to show bullish patterns. The extreme volatility is, unfortunately, the norm after an extreme market decline. We have also had extreme buying days with two better than 10% advancing days. It may be unsettling, but there is no avoiding the volatility if we want to profit from it.
The two days of selling took the S&P 500 Index - SPX down to exactly the Fib 61.8% retracement level for the entire Oct 28 to Nov 4 rally. This may have been uncomfortable, but when the market reversed right at the expected support level, it is a good sign.
Last week we wrote; "After a week of gains that were far greater than any week going back many decades, some profit taking is due. The markets may still be grossly oversold, but for the short term, they are ripe for profit taking after a week of gains. With the current levels of uncertainty, we should expect some selling."
That is exactly what we had after the election was over and traders decided to lock in some of those profits.
The potential for a lasting bottom, having occurred at the intra-day lows back on October 10th, continues to be the best bet. That level has been tested and retested over the past weeks and it has held.
Last week we also wrote; "What is important for subscribers to understand, is that whatever we write here, and whatever we forecast, Fibtimer will follow the trend wherever it takes us. We have no difficulty being wrong. All we want is to be on the right side of every major trend, and to keep any losses small if we on the wrong side."
We will likely keep the above paragraph in our weekly reports for awhile.
Friday's rally late in the session should carry over into early next week barring a negative news event in this less than stable world.
The daily chart of the SPX (below) shows three successful tests of the October 10th low, with the last one being the major test, and resulting in last week's 10% single day rally.
The NYSE has now had two better than 9 to 1 up vs. down volume day surges over the past several weeks. Such volume surges are unusual, and when they occur twice within three months, typically mark the beginning of a new major advance.
The second volume surge day, last Monday October 28th, was also accompanied by one of the highest total volume days in NYSE history. This also is an important ingredient in a successful bottom.
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Looking at the chart using Elliott Wave Theory, it indicates the October 10th low to be a Wave 3. That would forecast, after a rally (Wave 4), that we will still see a Wave 5 going to new lows. This is bearish but it is also the result of subjective analysis. It may, or it may not, happen that way. Elliott Wave analysis is better after the fact, so we watch it, but do not trade according to its signals.
On the weekly chart (below) you can see the SPX almost made it to the 2002-2003 bear market lows on October 10th. This may have been close enough to have been a successful test of those lows.
The third chart (below) is the CBOE Volatility Index - VIX. It has reliably signaled turning points in the market when it climbed to extremes of over 40.0, accurately signaling bottoms.
Two weeks ago it reached close to 100 intra-week, closing at 79.13, the highest close ever recorded. The VIX chart has now reversed lower for two consecutive weeks. It closed at 56.10 this week. This is bullish, though not to be considered as absolute proof of a rally. It is a good sign though that VIX is finally coming down.
If we continue higher, short term resistance levels for the S&P 500 Index are at SPX 1074 and then SPX 1130.
The SPX 1000 level stopped the rally this week. That makes it an important resistance level. If the SPX can close above 1000, we would expect an escalation in the advance and considerably higher highs in coming weeks.
The target for this advance then is SPX 1074. That is 15% above current levels and after this week feels like it is far, far away. But it can be reached even if the advance turns out to be a bear market rally. The 50-day moving average is nearing the 1074 level and this adds even more resistance making 1074 a critical resistance level if we get there.
Conclusion?
It continues to look like a long term bottom was reached on October 10th. The current selling pushed the SPX down to a strong Fib support (905.80) on Thursday, and reversed for a substantial rally on Friday, ending the week on the upside.
We are still looking for a sustained advance that could reach SPX 1074 in coming weeks. The strategy is now positioned in bullish funds. If we reverse to the downside, there may be signal changes to protect capital, but the likely path continues to be to the upside.
For subscribers who overly worry about short term swings in the financial markets, remember that you do not have to be an aggressive timer to be a profitable timer. This strategy can and does incur small losses on occasion. Money is made in both aggressive and conservative style trading. Our Conservative S&P Timer strategy trades only the long term trends but that means it profits without the numerous buy and sell signals that active and aggressive traders take. The Conservative S&P Timer has been in cash since January 7th.
The SPX portion of this strategy is in a BULLISH position. Subscribers should be in the Rydex Nova Fund - RYNVX (or other bullish S&P 500 index fund) for both active and aggressive traders.
S&P 500 Index (SPX) Daily Chart
S&P 500 Index (SPX), Weekly Chart
CBOE Volatility Index (VIX), Weekly Chart
Nasdaq 100 Index (NDX) Chart Analysis
Last week we wrote:
"... Volatility in the Nasdaq 100 Index - NDX index triggered first a reversal to a cash position at the close Tuesday, and then another reversal to a bullish position on Wednesday. The net result was; we caught the entire 11% gain on Tuesday, we were in cash for the small decline Wednesday, and then we were fully invested for the Thursday-Friday rally."
This week:
The prior week's huge rally lasted through Election Day this week, and then profit taking began and we had two very strong days of selling.
They appear to have been overdone and just as with the SPX, the Nasdaq 100 Index - NDX reached to exactly the Fib 61.8% retracement level by the close on Thursday.
This is critical support and resulted in a 4% rally in the Nasdaq on Friday. A rally from expected support is bullish and we are looking for it to continue early next week. If it does not, we will be watching carefully for any signs the market is going to break lower. We will reverse position or go to cash as conditions dictate.
But as of this weekend, the likely direction of the NDX is to the upside after testing lows and reversing from them on Friday.
On the weekly chart (below) you can see the NDX almost made it to the 78.6% retracement of the entire advance since the 2002-2003 bear market lows. This long term support level is an important one and may be telling us the bottom is a valid one. It is not as low as the SPX went, but the indexes do not have to follow each other in lock-step.
Wave analysis has the NDX only at the bottom of what looks to be a Wave 3. Typically there are 5 waves in a completed major trend so the Elliott Wave's are calling for another and final wave down (after a Wave 4 advance). Wave analysis is an excellent tool for trying to peer ahead into the murky future but it often has multiple levels of other larger waves that can make forecasting difficult. It is much better after the fact unfortunately, but always worth watching.
Last week the NDX had reached the "prior" 1348 support level. It is still drawn on the weekly chart. We said it might act as resistance and certainly this week's declines confirm this.
Last week we wrote: "After such a huge one week advance we expect to see selling next week. The election throws a wild card into the mix, but the results of the election have likely been factored into the market by now."
We certainly had the selling. More than most expected. The target for the NDX in this advance continues to be the prior July 2006 lows at NDX 1451 (see the daily chart below). A close above this level would then forecast a continued advance to the NDX 1581 level. This is an 18% gain so we do not expect the road to 1581 be a smooth one and this week is a perfect example.
These are historic times and as such, the markets are quite likely to follow different paths than what we expect. But following trends always works. That is why we were bearish for most of the decline and why we will catch the majority of the uptrend as it unfolds.
The volatility and huge price swings cannot be avoided for aggressive and active fund traders. If you are in anyway uncomfortable over these past weeks, stay in cash and follow our Conservative S&P Timer that went to cash on January 7th. It will give a long term buy signal only when all the volatility and danger has passed.
The NDX portion of this strategy is BULLISH. Active traders and aggressive traders should be in the Rydex NDX 100 Fund - RYOCX (or other bullish NDX 100 index fund)
Nasdaq 100 Index (NDX), Daily Chart
Nasdaq 100 Index (NDX), Weekly Chart
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S&P 500 Position - 
Gold Stocks Position - 
