S&P 500 Index (SPX) Chart Analysis
Last week we wrote:
"Last week we wrote that it feels like the stock market just does not want to go down. That may not be a very technical observation, but in a new bull market it is exactly what happens. The market keeps rising and no one can believe it."
This week:
In last week's analysis we wrote that many investors still see this rally as doomed to failure. Many more are slowly moving funds in but are waiting for a correction before becoming fully invested.
This is the error of allowing emotions to guide your investing. Following a strategy that lets the stock market tell you when to be bullish or bearish, based on changes in price, up or down, never allows you to miss a major trend.
You may miss a bit at the beginning or the end, but being invested in all major trends is how profits are made. Investing according to where you think the market is going is how most lose money.
The SPX position in this strategy has now added over 57% in gains for 2009.
This week the S&P 500 Index - SPX moved higher again, though the Nasdaq and small cap indexes lost ground.
The SPX had higher intra week highs, higher intra week lows and closed with a new high. All typical of a bull market with further to go on the upside.
A correction is far overdue and will occur before long, but with the SPX above its prior Wave 4 highs, its 200-day moving average as well as above the pennant formation we had been watching (see daily chart below) everything appears to be set for further gains.
This week the Dow Jones Industrials finally moved into plus territory for the first time in 2009. That made the news and added to the confidence levels of investors.
The economy is generating better numbers though only barely. Slightly fewer jobs lost each week. Retail sales improving. Consumer confidence moving higher.
The SPX tested the 200-day moving average several times since closing above it last week and that average held as support. This is a positive and is drawing many bearish investors back into the stock market.
We wrote last week that this is likely the start of a new bull market. In a bull market there will be many waves both up and down. This is just the first, a huge rally to be sure, and it looks like it has further yet to go. The technical analysis tools we use are all pointing to this advance as the start of a new bull market.
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Let's look at the indicators.
The below daily chart still shows the pennant formation we were watching. The stock market broke above the red declining trend resistance line in a huge rally. We had written that pennant formations, after a substantial rally, typically break to the upside and that is what happened.
The SPX 934.70 level was also important. It was the Wave 4 high back in very early January. After the Wave 4 high the stock market plunged to its bear market lows in March. That was the final Wave 5 low. In Elliott Wave Theory you need to close above the previous Wave 4 high for a definitive signal that a new bull market has begun. That higher close was achieved on Monday of last week.
On that same day the SPX closed above its 200-day moving average. This average is watched by many investors as the dividing line between a bull market and a bear market. The SPX crossed below the 200-day moving average back at the end of 2008. Had investors followed this bearish signal and sold they would have missed the bear market almost entirely. Now we have surpassed this average to the upside.
The pennant formation, the 200-day moving average and the Wave 4 highs were all huge resistance levels. They have all now been surpassed and it all happened on Monday of last week. The market is currently consolidating the gains made in this technical breakout.
The CBOE Volatility Index's (VIX) is holding below 30. As the advance continues the VIX could reach to the teens again. The VIX is a contrary indicator and many analysts use it as a measure of fear in the markets. Higher numbers typically occur during declines, but as the market advances VIX moves lower.
Support now is at the 50-day rising moving average, around SPX 889. After this there is support at SPX 809 and then SPX 775.
The target for this rally is SPX 1119 but there is no way we will arrive at that number without a substantial correction along the way. So we are looking at this as attainable by the end of 2009 at best.
Though the breakout makes higher highs the likely path, a correction can occur at any time. If we trade below these three important levels it does not invalidate them. The stock market is looking at an advance, with corrections, that could last years.
Conclusion?
The early March close below the November lows, as well as below the 2000-2002 bear market lows, has completed a bearish Elliott Wave (5 Wave) pattern.
We now have an Elliott Wave confirmation of a new bull market for the SPX. This occurred when the SPX closed above 934.70 on Monday, June 1st. Accordingly, we are at the beginning of a new advance that will last months and possibly years. How far it will go is unknown, but it should be very profitable and consist of several waves higher, with corresponding corrective waves along the way.
The SPX is now above its 50-day moving average and its 200-day moving average.
There have been six breadth surges of better than 9 to 1 which occurred during the early weeks of this rally. This is a bullish indicator that points to a lasting advance.
The target for this advance is SPX 1119, about 18% above current levels. We do not expect to reach this level any time soon. The stock market should correct along the way.
We have considerably higher highs ahead and the advance is likely to last years. There will be corrections along the way and no one will know when they are about to occur. But after the corrections, the stock market will make ever higher highs.
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 Jan. 7, 2008.
The SPX portion of this strategy is in a BULLISH position and in the Rydex Nova S&P 500 Fund - RYNVX (or other bullish SPX index fund).
S&P 500 Index (SPX) Daily Chart
S&P 500 Index (SPX), Weekly Chart
Nasdaq 100 Index (NDX) Chart Analysis
Last week we wrote:
"If the Nasdaq 100 Index - NDX is a predictor of market direction we have good news ahead. Last week we were looking at a possible double top in the NDX plus there was a good chance of closing below both the 200-day and 50-day moving averages. Instead, the NDX mounted a solid rally this week, closing at a new 2009 high and erasing fears of a double top."
This week:
The Nasdaq 100 Index - NDX as well as the Nasdaq Composite and small cap indexes, all pulled back this week, but only fractionally. The NDX position in this strategy has now added over 19% in gains for 2009.
The NDX is right at a substantial resistance level; the 50% retracement of the August 2008 bear market rally high and the November 2008 bear market low.
A decisive close above NDX 1498.49 would point to a continued rally to at least NDX 1612.72. This is the Fib 61.8% retracement resistance level and is 8.2% above Friday's close.
Somewhere in here we are likely to begin a correction and considering the gains so far, the correction could be substantial.
The NDX remains far ahead of most other indexes in percentage gains. It is well above both its 50-day moving average and its 200-day moving average.
The 50-day moving average for the NDX has now crossed above the 200-day moving average. This is another technical plus that points to a new bull market.
The NDX has strong rising support at the 50-day moving average at NDX 1389. After that is the 50% retracement support level for the entire March to June rally at NDX 1271. Below this is the critical Fib 61.8% retracement support at NDX 1216.
Conclusion:
The NDX has a Wave 5 Elliott Wave low in place at its November 2008 lows. The NDX has closed above NDX 1378.40, the Wave 4 high, which confirms this as a bear market bottom based on Elliott Wave theory. The SPX has also confirmed this bear market bottom.
The NDX remains above its 50-day moving average and the average is rising rapidly which creates a rising support line. The NDX is also above its 200-day moving average.
The NDX is right at strong resistance. The 1498.49 level needs to be surpassed in coming days to keep the rally alive. If it is decisively surpassed, the new target for this rally will be NDX 1612.72.
The NDX continues to outperform the big caps and as the advance progresses, it should continue to outperform.
The NDX portion of this strategy is in a BULLISH position and in the Rydex NDX 100 Fund - RYOCX (or other bullish NDX 100 index fund).
Nasdaq 100 Index (NDX), Daily Chart
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S&P 500 Position - 
