S&P500 analysis

by Malcolm Pryor on 12/02/2013
I tend to use the S&P500 index as a proxy for the overall market, even though based in the UK. To some extent the S&P is the "dog" that wags the FTSE 100 "tail". I have drawn 3 vertical lines on the attached chart of the S&P500 index.each partitioning off different phases of recent market action. Before the first vertical line is 2012, and there was a significant pullback in the up trend as fiscal cliff debates hung in the balance. Then between the first and second vertical lines are the first 2 days of 2013, with the year kicking off with a powerful buying spree (and short covering) producing a spike on the chart. Between the second and the third vertical lines the market was in a tight upward sloping channel following the spike of the first 2 days of the year. Now, after the third vertical line we have entered a period where that tight upward sloping channel has been broken and there is two way trading with many overlapping bars; ie the market action has become more sideways. This really should be a wait and see time, since from this sideways action the market could break either way, we could see a more extended pullback or a continuation of the former trend. Some analysts would estimate the chances are about 60% for a break to the upside, 40% to the down side. Note the three moving averages nearest to the price action are still clearly pointing up and are in up trend mode (they are 13 26 and 52 day exponential moving averages). If we were to see a more extended pullback some analysts would put the target as the beginning of the channel after the spike, ie around 1452.


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