Stock Market Technical Analysis
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Taking a look at the multiple channels the S&P has been using during the past 18-months.
- Channel 1 - Midterm (orange lines): this channel was back tested on Friday and failed at midday which caused the S&P to sell down again in the afternoon after rising up to it.
- Channel 2 - Longterm (red lines): this is the primary 2-year channel which was also lost during Friday's selling.
- Channel 3 - Midterm (brown lines): we dropped down into this channel Friday, which is not a very tall channel but we did close at the midpoint line (not shown). We could reach the bottom of this line if we had another hard day of selling though.
- Channel 4 - Longterm (blue lines): we could open right at the lower line of this channel on Monday. If it holds it would bolster the case for the 200 day SMA holding also as I discussed in my last website blog post, The Contrarian View.
- Channel 5 - Longterm (green lines): this is a very tall channel with a well established center line, the lowest of the channels that could provide support if the selling continues. The bottom of this channel is currently at S&P 1700 which is what the bears are targeting because even if we get down to that lower line the S&P will still be in a healthy uptrend.
Any of these channels that we enter could hold and normal trading could stay within it for any amount of time. Fortunately for the bull case, there are three prominent channel lines crossing through the next 75 points below where we are at on the S&P. Normally, every channel would provide at least a few days of support even in a cascading sell off. The situation we are in however, is anything but normal. The S&P has been driven halfway to the moon over the past two years by the Fed to capture the residual economic benefits of increasing the wealth factor of consumers. We are in uncharted territory now, no one really has any idea how this will play out in the short term or long term.
Trade well my friends
Alan
