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S&P 500 Index: Why The 1470-1474 Area Is Crucial For The Bulls (SPY, SDS, SH, SSO)

January 4th, 2013

David Banister: The S&P 500 Index (INDEXSP:.INX) has been in a potential 5 wave rally going all the way back to October 2011 lows of 1074. This type of 5 wave rally is common in a Bull Market, but must be watched closely as it could also signal another large correction just around the corner from current 1464 levels on the SP 500 Index. Once you complete a 5 wave bullish pattern, there is commonly a 3 wave corrective decline, therefore determining where those key pivot points are is crucial for market watchers.

If we take a look at the length of the 5 waves in the Rising Wedge pattern from the October 2011 lows of 1074 below, and compare them with other waves 2-5, we can see several fibonacci fractal relationships amongst all of them. This is one of the clues I look for when trying to analyze pivot points and knowing at least what I should be watching for further clues.

In most cases, wave 3 is commonly the largest of a 5 wave structure,  but that does not preclude wave 1 from being the largest in the series. To wit, recall the nasty decline into October 2011 that spurred the next big market advance of about 350 points off the bottom.  When you have a significant decline preceeding the early stages of a 5 wave advance, often the first wave in the pattern is in fact the largest, which may be the case here.


Let’s take a look at a possible 5 wave count just so we know what to be aware of :

Wave 1: That 350 point advance was a possible wave 1 off the 1074 lows of Oct 2011.

Wave 2: managed to retrace 155 points of that advance into June 2012, a common wave 2.

Wave 3: rallied to the 1474 pivot, which was a 207 point rally. 207 points is about 61% fibonacci relationship to wave 1′s 350 point advance, again another clue.

Wave 4: dropped as we know from 1474-1344, or 130 points. 130 points is also about 61% of Wave 3′s prior advance on the downside.

Wave 5: Theoretically this wave 5 is now from 1343, and if we took 61% of wave 3 advance and add it to 1343, we come up with about 1470.

1470 would then be a double top in the market, stop wave 5 in its tracks… and be followed by a large correction.

So with the above in mind, we advise watching 1470-74 with keen interest as the market will want to take this area out with authority to continue the intermediate bull run. If not, we could be in for some downside trouble…

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Related: S&P 500 Index (INDEXSP:.INX), S&P 500 ETF (NYSEARCA:SPY), Dow Jones (INDEXDJX:.DJI), ProShares UltraShort S&P500 (NYSEARCA:SDS), ProShares Short S&P500 (NYSEARCA:SH), ProShares Ultra S&P500 (NYSEARCA:SSO).

Written By David Banister From The Market Trend Forecast

David Banister – We believe that markets move largely based on important swings in sentiment, crowd behavioral patterns, Fibonacci Re-tracements, Cycles, and other ephemeral catalysts.  The headlines explain what just happened in the market, but they do not predict the next moves up or down in the indices, sectors, or commodities.  As an investor, you need to be armed with tools in advance of major moves that are accurate, and TMTF will assist you in being prepared as an investor for volatile markets both on the upside and downside. We have a wealth of technical analysis experience to take advantage of the crowd behavior in the markets.  Our Chief Strategist, David Banister,  has been quoted and or written articles on CBS Marketwatch.com, 321gold.com, TheStreet.Com, SafeHaven.com, Kitco.com, Stockhouse.com, Theaureport.com, along with other well known investment sites.  David has been a past guest on the national radio show “Money Matter$”.  Chris Vermeulen of Thegoldandoilguy.com met David in 2008 as the financial crisis was unfolding.  After numerous months of following the forecasts and trading abilities of Mr. Banister, Chris suggested that a joint venture be formed and we offer a trading service to a finite and select group of partners (subscribers).  ActiveTradingPartners.Com was formed in July of 2009, and with the success of that service, we now launch The Market Trend Forecast in March of 2010.


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