S&P 500: Is It This Simple?

In an age of Algorithms, High Frequency Trading, Quant-injected performance engines and every Casino Patron with an e-Trade account hyper-stimulating the market after each bit of news that is fed (no pun intended) to us by the financial media and Policy Central, the lowly individual can be forgiven for feeling small and vulnerable; for feeling as if the answers are beyond her, or that long-term success is out of his reach.

Indeed, this very publication has ground its gears pondering the fact that August-September market sentiment became historically over bearish in ratio to the relatively minor downside experienced thus far. That was a bullish, not a bearish thing. With sentiment now being repaired it is time to ask if we are giving the bulls too much latitude.

The market bounce is proceeding along nicely. In fact it is proceeding a little bit too nicely (nicely enough to jerk the ‘Dumb Money’ sentiment up with it in lockstep to market price per the graph we reviewed in Friday’s update). Our bounce targets are now being reached, with SPX 2000 and 2020 in the books and the others waiting just above.

My question to you is what if it is so simple and not at all different this time? Let’s use the Presidential election years of 2000 and 2008 as examples. I am not a cycles analyst, but this is pretty simple. Clinton hands off a brewing mess to Bush, who in turn hands a disaster off to Obama. Now, who is going to take the ball, another 8 years on?

As always, charts will state the facts of what has happened before. So let’s compare the current S&P 500 (SPY) to the two previous cycles using weekly charts. What we have below (current situation) is a breakdown, a classic double bottom and now an upside re-test. Does that look like a lot of overhead resistance to you? It does to me too

The 50 week EMA supported the October 2014 decline after dropping below and hammering back above it. SPX is now at the EMA 50. That is generally the first notable resistance area. Next up is lateral resistance beginning at 2040 up to 2060. Beyond that, a spike (inverse to the downward one below the EMA 50 in Oct. ’14) the pattern’s measurement around 2100 cannot be ruled out.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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