The S&P 500 is moving down lately.  Let’s look at some chart perspectives to project possible near-term end points for the price movement.

Support, Resistance and Retracement:

The S&P 500 is approaching a potential support level at about 875 based on 20-day price channels.  If it pierces that level and stays there for a few days, a much larger downward move is probable.

click images to enlarge

An extended decline below 875 might likely go to the 805-810 area as a 1/2 retracement, or the 750-760 area as a 2/3 retracement, from the recent peak.

S&P 500 Internals:

Several internal dimensions of the S&P 500 also point downward at this time.

The percentage of the 500 constituent members with bullish Point & Figure charts has crossed the 75% level (at 59%) level in a downward move.  The ratio of new highs to new lows has crossed 25% (at 20%) in a downward move.  The percentage of constituents above their 50-day moving average crossed 50% (at 41%) in a downward move. The percentage of constituents above their 200-day average is approaching 50% (at 52%) in a downward move.

The trading volume in the index has declined ever since the price level exceeded about 800 in late March.

Primary Trend:

The 200-day simple moving average is still downward sloping.  The 200-day exponential moving average, while nearly flat, is still slightly downward sloping.

Linear Regression View:

Approaching the question of possible price ranges from a different perspective, linear regression best fit form various beginning points shows mostly possible price levels based on trend continuation.

The values for today that are implied by the linear regression best fit trend lines are:

• from Jan 1, 2008: 735
• from Sep 1, 2008: 787
• from Jan 1, 2009: 904
• from March 6, 2009: 960

Odds Cone Projection:

Taking a perhaps more balanced, not just downward view, a statistical probability approach based on prior volatility suggests theses price ranges to a 90% confidence level:

• 60 days forward based on 60 day history: 1020 to 784
• 60 days forward based on 40 day history: 1010 to 793
• 60 days forward based on 20 day history: 1003 to 700

Even though the odds approach is symmetrical up and down, we tend to put more faith in the lower ranges based on the the other decidedly negative factors discussed above.  If the market does go up, 1000 to 1020 may be the limit for the next 60 days.

We believe we are in a correction phase at this time.

Richard Shaw
QVM Group LLC

This entry was posted on Tuesday, June 23rd, 2009 at 9:55 pm and is filed under Market Conditions, US Stocks. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.