S & P 500 Chart, Technical Analysis

S&P 500 Archive-March
Archive of S&P 500 comments, January. February

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Nothing (3/31/01)

Intermediate cycles on the SPX have bottomed. Based on centered moving averages, all cycles ranging from 6 weeks to 47 weeks on the SPX have made their lows. (To see the cycle decomposition work which filters the various cycles, check out Market Cycles.) The price projections for those cycles ranged from 1080 to 1140.

Does that mean we go up from here? No. Keep in mind that the two year wave (nominally 21 months on the SPX) is headed down hard. It's pointed at 930. Dr. Stool now thinks that low is due in the second half of the year, based on the theory that the 1998 worldwide financial panic and market crash was an extra-cyclical event. Looking at a monthly chart of the SPX, this event snapped out, and right back in, to the wave path, in a short time. The October 1999 low is more consistent with the cyclic pattern.

Short run cycles are conflicting with the downward path of the two year wave. The intermediate cycles are all headed up. Up is a relative term. They are up only in the context of the waveband which contains them. The intermediate upward motion will be limited by the sharp downward tilt of the two year wave. There are two options for the path of the intermediate cycle up phase: short and sharply upward, or weak and generally sideways, or even slightly down in real terms.

The second option appears more likely. The sharpest part of the up phase may already be over. The 13 day cycle is topping out, with an upside objective of 1180 already reached. The 5 and 8 day waves are too weak to be of any interest to anyone but inside scalpers.

Dr. Stool thinks it boils down to a whole lotta nothin' going on for weeks. The SPX looks like it will be stuck in a trading range of 1125 to 1180, give or take a few points.

About those extra-cyclical events. Watch the technical indicators on the charts closely. While doo doo happens, it's never a surprise. You always feel the rumblings in advance. Same thing for the market. The technical indicators, like stochastics, percentage price oscillator, and rate of change indicators will almost always rumble in advance of a big move in price, like the 1998 event.

However, unlike 1998, if a financial crisis does develop, it will not be counter-cyclical this time. Any crisis in the current long term cycle phase will only exacerbate and extend the downstroke.

Like Dr. Stool said, up is relative.

Nothing (3/31/01)

Intermediate cycles on the SPX have bottomed. Based on centered moving averages, all cycles ranging from 6 weeks to 47 weeks on the SPX have bottomed. (To see the cycle decomposition work which filters the various cycles, check out Market Cycles.) The price projections for those cycles ranged from 1080 to 1140.

Dr. Stool thinks it boils down to a whole lotta nothin' going on for weeks. The SPX looks like it will be stuck in a trading range of 1125 to 1180, give or take a few points.

However, unlike 1998, if a financial crisis does develop, it will not be counter-cyclical this time. Any crisis in the current long term cycle phase will only exacerbate and extend the downstroke.

Like Dr. Stool said, up is relative.

Transparency (3/29/01)

By just about every cycle measure Dr. Stool looks at, from 6 minutes to six months, this index is headed back to test the 1100 level, soon. The projections all stop there. So we know what's going to happen. The SPX will successfully test the 1 100 level. The idiots will again declare the bottom, and we'll get another one of those Roman Candle rallies.

That next rally is going to probably look a little more convincing that the last few. But more on that later. Let's see how we get to 1100 first. Dr. Stool suspects it will be one of those saw toothed slow bleeders, with a weak rally before starting down into the low due April 10.

Crackback Block (3/28/01)

The bear took the legs out from under that rally which on Tuesday looked like it was headed for 1200. This cyclic breakdown is further confirmation that the bear is firmly in charge, and he ain't lettin' go any time soon.

The market may try one more little up before falling apart completely, but the technical picture on the daily chart is extremely weak. There's a strong chance that things will accelerate to the downside over the next couple of weeks. That's based on the theory that the late February low was the bottom of the six and ten week cycles, and that the 13 day cycle is now dominant. Under that theory the market would be entering a topping phase in the six and ten week waves. If that is so April is going to be down very hard, instead of sideways or just down a little.

For now, the cycles up to a year are projecting to a low of 975 which appears to be due in the second half. That suggests a moderate rate of decline between now and then. If this last rally should fail to hold any of its ground over the next few days, those longer term price projections are going to start adjusting down.

Roman Candle (3/27/01)

This one may have some get up and go in it. The five, eight and 13 day cycle projections are pointing to the 1210-1230 area, which is still a helluva move from Tuesday's close. The bears are going to be getting a little tight. When shorts panic, markets go vertical. Once they're done, things will deteriorate rapidly.

The buy signal on the 25 day stochastics looks impressive. They always do in a bear market. that's why they are dangerous. That signal means that the downside pressure is off for a while, but you must continue to govern your actions by the evidence of the bigger trend. As long as those 17 and 25 day averages are headed down sharply, along with a weak reading in the 17 day percentage price oscillator, the trend is down.

Suck, Suck, Suck (3/26/01)

That's the old market vacuum sweeping up the ever hopeful bulls. Every few weeks the market makers and specialists turn on the suck machine so they can get rid of all those longs they're choking on. They use the rallies to unload, and hopefully get short enough to take it in the next swoon. But if the rally doesn't carry, and they can't get heavily short, the next time the market goes in the tank will be even worse. Dr. Stool can almost hear the digestive rumblings in the distance.

That sensational breakdown you see on the monthly chart generated a great deal of downthrust. The residual downside momentum is going to last a while, and the daily chart suggests it could gain strength. Wave after wave of mini-panic is followed by counter-waves of wishful thinking like the one we are seeing now. This is sapping the market of future buying power. Momentum is horrible, and there is no sign whatsoever that it has gotten any better in this rally.

The SPX is in a very minor cycle up phase with an upside measurement of 1164. A couple of the hourly averages suggest a high of 1170. These are all close enough to the high of 1160 on Monday, as far as Dr. Stool is concerned. The upside m.o.'s have tended not to be reached in this market, while the downsides have overshot a number of times.

The way the 17 day rate of change is acting suggests that the late February-early March low was a six week cycle low. If that is the case, the index is now at or near the cycle high, and is headed for a severe down phase. If the SPX starts to slip here, look out.

Rigor Mortis Rally (3/24/01)
The SPX went down and got close to the downside projection derived from 10 week cycle averages. Now what?

Don't expect much. The oscillators on the daily charts have improved just a bit, but have not broken any significant downtrends. The downtrend on the daily price chart is intact and powerful.

The rally may be over already. On intraday charts, the stochastics are overbought. Yes, bear markets get overbought, but not oversold.

Just for a little perspective, here's a monthly chart going back ten years. A picture is worth a thousand words. The SPX has just broken down from the biggest top pattern in its history with accelerating downside momentum. It's headed for the long term trendline. This squares with long term cycle projections of 950, but given the momentum behind this move, that projection is likely to adjust down.

Notice how early the Percentage Price Oscillator was signaling the top. The same should happen at the bottom. Right now downside momentum is still accelerating.

It's going to be a long wait.

Back From The Brink (3/22/01)
Wednesday night Dr. Stool pointed out that if the SPX broke 1100 in the short run, the downtrend would accelerate, because it would have broken a downtrending lower channel trendline. Well, Thursday's action was like one of those movies where the guy falls off the cliff but catches a branch on the way down and manages to hold on. We were that close to going off into the abyss.

But would you look at that, the index only managed to barely hold on to that branch. At the close, it was sitting dead on that trendline. So the bulls are not home free yet. The branch might yet just break.

The ten week cycle low projection on Wednesday was 1075. That area has broadened to 1025-1075. With Thursday's low at 1081, the SPX is in the range of a potential cycle low. If the market merely consolidates in here, going more or less sideways during the up phase, allowing the oscillators to move up from ground zero, the probability of another massive downstroke to follow would increase. That long term target of 950 is going to happen sooner rather than later, and a year or so ahead of when Dr. Stool guessed it would back on New Years eve.

Which brings up another rule of stock proctology. No matter how bearish you are in a bear market, the reality of the bear is that he's full of surprises, both up, and down. In other words, when you expect it to be bad, it's worse, and when you expect it to be good, it's a lot worse.

Awe Inspiring (3/21/01)
As a long time stock proctologist and technician, watching this price action is awe inspiring. This is a once or twice in a lifetime opportunity to study market behavior that most have never experienced. We are in a great bear market, only the third in the past three quarters of a century.

It's not an accident that these things tend to occur a generation apart. It is necessary for each generation to relearn the lessons learned by those who preceded us. Dr. Stool's generation learned its lessons in the great bull market of the early to mid-sixties and the great bear market of the late sixties through mid-seventies. Our grandparents learned from the bubble of the twenties and bust of the thirties.

Dr. Stool's father has a spry and savvy 90 year old friend, who started a business at the age of 15 in 1926. He told Dr. Stool that the recent years in the market and the economy reminded him very much of the 1920s, and that the current environment all seemed quite familiar.

The problem with markets is that they are always dominated by the young, who have no memory of the past, and no interest in learning about it. Each era is a new era. But in the end those young investors cannot escape the echoes of history, the never-ending cycles of innovation, expansion, over-expansion, and retrenchment.

Looking at the charts, the intermediate cycles are now projecting to 1075 or so. That's a little lower than yesterday's extrapolation. The longer term targets are lower still. There's a downtrending trendline at about 1100. If that breaks in the near term, the downtrend will accelerate.

Massive Failure (3/20/01)
What does it mean when cycles cease to show themselves when expected. Very simple. The trend is in control. The trend, which is just the up or down phase of a bigger cycle, is so steep, that it completely suppresses smaller waves. They no longer have meaning in the big picture. They can't be traded, they can't be relied on. All there is, is the trend, the trend, nothing but the trend. Those 10 week, 6 week, 13 day, and shorter projections Dr. Stool has been making? A joke, a complete waste of time. The big guy, The Trend is in the pilot's seat, and he's steering this thing straight down.

Be that as it may, the ten week cycle centered averages now project to 1085-1100. That doesn't mean much. Any cycles shorter than that are so sharply sloped, they can't be read. Dr. Stool looked at cycles of a year and 18 months. They're projecting toward lows between 975 and 1025 some time in the next three months. Not much help, but that's what they're saying.

Poised to flare up (3/19/01)
Let's see, looks like a five, eight and 13 day cycle low is in place. After adjusting for Monday's anticipation rally, the downside price projections have been met. The eight day cycle centered moving averages have moved enough to project a high of 1180.

Here's a little bigger news. The ten week cycle low projection of 1145 has been met, and the cycle low is 5+ days past due. The up phase won't amount to much, given the angle of the downslope of longer cycles, but we should get one, especially since all the pundits are predicting the market will go down, no matter how big a one the Fed cuts. Dr. Stool doesn't really care whether they cut a big one or not. Just because all the "experts" say the market will go lower, it'll rally.

It's too early to project how high that ten week cycle up phase will go, but a run for the upper channel trendline around 1200-1220 would be normal.

Runaway Freight (3/17/01)
It's very important to look at the weekly chart. The daily chart below simply doesn't convey the magnitude or the importance of what has happened this week, a breakdown of one of the biggest top patterns in history. If you are a new visitor, or you haven't been here for a few days, go to the archive and read the last two columns.

The decline is picking up momentum as the index broke down, not only from the top pattern, but from the descending lower trendline of the downtrend channel that began last September. This portends an accelerated rate of descent for a protracted period of time.

In the short run, the ten week and 13 day cycle low projections, are 1125 and 1140, respectively. The low is overdue on the ten week cycle and due Wednesday on the 13 day cycle. The up phase which will follow is likely to be severely stunted in time and slope, by the severe downtrend in intermediate cycles.

Miniscule Up (3/15/01)
Following completion of the 2 year top, the SPX put in a tiny 5-8-13 day cycle low, and it looks like the up phase is just about over already. The ten week cycle moving averages are now pointing to a low of 1125. There's absolutely no sign of a meaningful end to this. It has a long, long way to go.

It's extremely important to note that the SPX has dropped through the bottom of its downtrend channel. Such events usually presage severe, extended moves. The same thing happened on the way up when the bubble broke out of its channel. This is its unwinding. The only difference is that after this event the market ain't going back from whence it came.

Gigantic Top Complete (3/14/01)
The SPX's weakness has caused another downward adjustment in the ten week cycle price objective. It now looks to be in the 1125-1150 area. That's also an area where the lower downtrend channel boundary is projecting over the next couple of days.

It's important to keep any rally off that projected low in perspective. The S&P has just broken down from the biggest top pattern in the history of the world. How big is it?

It began forming in January 1999 when the S&P broke through 1200 on the upside and formed a number of short term lows at that level several over the next three months. The following rally led to an intermediate bottom in the 1250 area in October 1999. After that, the market vaulted higher and remained between 1300 and 1550 until late last year, finally revisiting the 1250 low in December. It broke that baseline, stretching back over two years in February, and broke the 1200 baseline just this week.

Ladies and gentlemen, what we have here is a compound head and shoulders, with a double top, which began forming TWO years ago, and has just this week been completed. To put this in perspective, take a look at the weekly chart. That should help you understand what lies ahead.

Second Look (3/13/01)
After yesterday's recovery, it seems wise to revisit the ten week cycle low theory. Using centered half-span and full-span moving averages, the low for that cycle, which is past due, projects to 1175. That means that it's probable that the cycle low Dr. Stool was looking for the week the week of March 2-9, was just a little later and a little lower than originally projected.

Building on that, the implication is that intermediate waves, like the four and seven month cycles are sloping down more than originally projected. This would skew all shorter cycles to the downside, with shorter uplegs in both duration and amplitude, and longer downlegs. Under conditions like that we get up phases that aren't recognizable as such. They are "up" only in the sense that they are moving from the larger cycle's lower channel band to the upper band. If the down slope of the larger wave is sharp enough, the "upleg" becomes no more than a consolidation, or even worse, just a temporary slowing in the downtrend.

There's no sign of improvement yet on the daily chart, and resistance lies just overhead in the 1220-1250 area.

Tricked Again (3/12/01)
The same comments of course apply here, as applied to the Nasty and Dowager. The cycle frequencies are shifting, in this case elongating, and the ten week cycle moving averages extrapolated lows earlier, and higher, than they were, because the time span was too short. Extending the time frames to 13 weeks for the full span moving average, and 7 for the half-span, the centerlines of the wave trend now point to a low of 1075-1125 near the end of March. Bears repeating, that's a short term low only. The bear will hibernate for a short time, and come back for more.

Never Got There, Never Will (3/9/01)
The Sphinxter crumbled with the market Friday, falling short of its' 13 day cycle objective by a few points. The 5-8-13 day cycle lows are now projecting to 1215.

Dr. Stool thinks this is all part of a sideways up phase in the ten week cycle. He also expects that up phase to be shortened by the sharp down slope of intermediate and long term cycles. But for the next few weeks anyway, that 1210-15 are should hold for a little while.

Nine More Points (3/8/01)
That's the upside objective for the 13 day cycle, now headed into day 6 coming off the ten week cycle low. Big deal right?

Let's not get too cocky here bears. The 10 week cycle is still a new babe, and is likely to play some games with us for a week or three. So Vive le resistance at 1275. Hold that line, hold that line!

Let's see how she behaves there. That'll tell us more about whether this 10 week cycle up phase will be one of those sideways deals that usually precedes a a really big dumperoo, or whether it has a little more upward tilt. Dr. Stool guesses the SPX will just march in place for awhile, which is boring torture for traders. But stool happens, especially in this stupid game.

Can You Smell It (3/7/01)
It sure did leave one hell of an odor didn't it? And as the day went on it kept smelling worse. The turn generated a projection of a high of 1264 on the 8 day cycle. Let's see, yesterday's high was, 1267, about an hour after the opening. Guess the bulls let out all the gas in one shot.

The 25 day stochastics oscillator as confirmed the ten week cycle low. In light of the weakness on bigger trends, Dr. Stool expects the up phase to be weak, a sideways up phase. From the looks of it, it's already seven days old. The big bear is out there, biding his time, as the bulls get fattened up for the slaughter. He'll get a few weeks of rest, then it's back to work.

Bullfart Rally (3/6/01)
It's here, can you smell it? The ten week cycle low looks to be in place. The 5-8 day cycle high projects to 1258. Big deal.

It's too early in this to project a high for the ten week cycle, but with the intermediates sloping down as sharply as they are, this thing is either going to be sharp and short, and top out around 1260, or it'll just meander in a range before the bottom drops out in a couple weeks.

Dr. Stool is going to wait patiently to establish new short positions as the market approaches resistance a week or three down the road. As for the long side -- Gee let's scalp for nickels. A little stressful for the kinds of returns you get, don't you think. Better to sit it out.

Three Point Landing (3/3/01)
That little bit of seepage we saw Friday appears to have possibly, maybe perhaps, sort of, eh, pushed that measuring objective down ever so slightly, to maybe a hair under 1200. Why is Dr. Stool so sure of that?

Because at this point, close counts. Unwind those short positions for the next few days, and wait for the inevitable bullfart rally. You'll know it when you smell it.

Scraping Bottom (3/1/01)
Don't get all excited now, you know it's not THE bottom, just one of those garden variety two week lows.

This is going to sound like a broken record if you've already read the Dow and Nasty comments, so... on second thought, why bother to write 'em? Just remember, the price objective for this index was 1200 for the ten week cycle low. We're in the right time frame, and we're not going to quibble over that last 1%, are we?

As for the up phase, don't expect much, probably just a consolidation or mild reaction move, we'll see. Don't even think of trying to scalp the long side, unless you're a day trading fool. That's sort of like an extreme sport isn't it; skiing uphill in an avalanche? If you are the foolhardy type, buy the intraday selloffs and unload 'em on the way up. For heaven's sake don't chase.

Stepan N. Stool PH&D

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