fjkollar
12-30-2006, 03:02 PM
S&P 500 Index (SPX) Chart Analysis
Last week we wrote:
"...We are in holiday mode now. Volume is low and it is tough to predict from such markets. but still, down is down. The SPX is only off slightly but our main concern is the growing divergence between the big caps and the Nasdaq."
This week:
The year has ended and the last half had most of the gains. The first half was very volatile and traded mostly sideways with some extreme swings in prices. That said, the end year rally made a huge difference.
We are still watching that negative divergence between the SPX and NDX. In fact it has grown. More on that in the NDX analysis below.
But for the strategy overall,we have again handily beaten the S&P 500 Index for the year. Those end year results have been posted on the website.
No one knows what the new year will bring. We lean towards a couple days of weakness followed by a continuation of this huge advance. But gut feelings do not guide our strategy. If we rally, we will be ready to profit. If we decline and start the long expected correction, we will profit on the downside.
No advance continues in a straight line, and the SPX has been moving higher in a straight line for over four months. Somewhere in here we will have an overdue correction. But even that is unlikely to stop the advance for long.
It is possible we are seeing the start of this correction. Certainly the Nasdaq is indicating it. But the decline so far, looking only at the SPX, is not nearly substantial enough to consider as a change in trend. Not even close.
If our wave analysis is correct, we are in a huge Wave 3 that began back in July (see chart). Wave 3s are typically followed by a normal correction (Wave 4) and then a final Wave 5 rally which reaches new highs. That is the scenario we are looking for, but after such a long term Wave 3 rally, we are keeping a close eye on the charts.
The big picture remains bullish. The SPX is far above its prior 2006 rally highs.
Current support levels are at SPX 1328 and SPX 1303.
The trend for the S&P remains BULLISH. We are in the Rydex Nova Fund (RYNVX) or other bullish S&P index fund.
S&P 500 Index (SPX) Daily Chart
http://www.fibtimer.com/charts/SPX_061231_daily.gif
Nasdaq 100 Index (NDX) Chart Analysis
Last week we wrote:
"...In the above SPX analysis we mentioned a bearish divergence and this is our main concern here. The Nasdaq is lagging substantially at this point and when one major index lags while the second index rallies, it typically signals a correction is approaching. "
This week:
The Nasdaq and Nasdaq 100 Index - NDX has finally signaled a reverse in trend.
The chart appears to be showing a possible failed Wave 5. That would fit with the expectation of a correction over the coming weeks.
There is also a potential double top that can easily be seen in the below chart.
In the above SPX analysis we mentioned a bearish divergence and this is our main concern here. The Nasdaq is lagging substantially at this point and when one major index lags while the second index rallies, it typically signals a correction is approaching.
For the NDX, the correction may already have begun. If the divergence follows the path such indicators usually do, the SPX will soon follow.
That said, if the rally just keeps pounding higher in january, we will simply switch right back to a bullish NDX position. You can analyze all day but of prices continue to trend in one direction, that is where you must place your trades.
Support remains at NDX 1626 and then 1584.
The Wave analysis is hard to ascertain for the NDX as there have been no substantial declines to mark as a Wave 2. We have a potential Wave 2 marked but with question marks.
Now we have added probably Wave 3, 4 and 5 and all still have question marks. They are too small to be certain.
Nasdaq 100 Index (NDX) Daily Chart
http://www.fibtimer.com/charts/NDX_061231_daily.gif
Last week we wrote:
"...We are in holiday mode now. Volume is low and it is tough to predict from such markets. but still, down is down. The SPX is only off slightly but our main concern is the growing divergence between the big caps and the Nasdaq."
This week:
The year has ended and the last half had most of the gains. The first half was very volatile and traded mostly sideways with some extreme swings in prices. That said, the end year rally made a huge difference.
We are still watching that negative divergence between the SPX and NDX. In fact it has grown. More on that in the NDX analysis below.
But for the strategy overall,we have again handily beaten the S&P 500 Index for the year. Those end year results have been posted on the website.
No one knows what the new year will bring. We lean towards a couple days of weakness followed by a continuation of this huge advance. But gut feelings do not guide our strategy. If we rally, we will be ready to profit. If we decline and start the long expected correction, we will profit on the downside.
No advance continues in a straight line, and the SPX has been moving higher in a straight line for over four months. Somewhere in here we will have an overdue correction. But even that is unlikely to stop the advance for long.
It is possible we are seeing the start of this correction. Certainly the Nasdaq is indicating it. But the decline so far, looking only at the SPX, is not nearly substantial enough to consider as a change in trend. Not even close.
If our wave analysis is correct, we are in a huge Wave 3 that began back in July (see chart). Wave 3s are typically followed by a normal correction (Wave 4) and then a final Wave 5 rally which reaches new highs. That is the scenario we are looking for, but after such a long term Wave 3 rally, we are keeping a close eye on the charts.
The big picture remains bullish. The SPX is far above its prior 2006 rally highs.
Current support levels are at SPX 1328 and SPX 1303.
The trend for the S&P remains BULLISH. We are in the Rydex Nova Fund (RYNVX) or other bullish S&P index fund.
S&P 500 Index (SPX) Daily Chart
http://www.fibtimer.com/charts/SPX_061231_daily.gif
Nasdaq 100 Index (NDX) Chart Analysis
Last week we wrote:
"...In the above SPX analysis we mentioned a bearish divergence and this is our main concern here. The Nasdaq is lagging substantially at this point and when one major index lags while the second index rallies, it typically signals a correction is approaching. "
This week:
The Nasdaq and Nasdaq 100 Index - NDX has finally signaled a reverse in trend.
The chart appears to be showing a possible failed Wave 5. That would fit with the expectation of a correction over the coming weeks.
There is also a potential double top that can easily be seen in the below chart.
In the above SPX analysis we mentioned a bearish divergence and this is our main concern here. The Nasdaq is lagging substantially at this point and when one major index lags while the second index rallies, it typically signals a correction is approaching.
For the NDX, the correction may already have begun. If the divergence follows the path such indicators usually do, the SPX will soon follow.
That said, if the rally just keeps pounding higher in january, we will simply switch right back to a bullish NDX position. You can analyze all day but of prices continue to trend in one direction, that is where you must place your trades.
Support remains at NDX 1626 and then 1584.
The Wave analysis is hard to ascertain for the NDX as there have been no substantial declines to mark as a Wave 2. We have a potential Wave 2 marked but with question marks.
Now we have added probably Wave 3, 4 and 5 and all still have question marks. They are too small to be certain.
Nasdaq 100 Index (NDX) Daily Chart
http://www.fibtimer.com/charts/NDX_061231_daily.gif