| S&P 500 bullish pattern nears completion |
 |
 |
 |
| Written by Our staff writer |
|
March 16, 2010: The bullish inverse head and shoulders pattern on the S&P 500 is nearing completion calling on longs to take profits and bears to start looking for shorting opportunities. The current rally on the S&P 500 comes from the strength a bullish inverse head and shoulders pattern. Capturetrends had identified the pattern in July 2009 and predicted the consequent rally. Click here to read that report Bullish chart formation in the markets . The bullish pattern is now nearing completion that can affect all markets globally including India.Let us look at the charts of the S&P 500 below. The pink arrows near the bottom right of the chart show the inverse head and shoulders pattern. The green arrows near the bottom left of the chart show the same pattern in 2003. Interestingly, note that the distance between the left and right shoulder is exactly 33 weeks in 2003 and 2009. The markets show a lot of symmetry, but more of that in a different article. In the chart the pink upwardly sloping line shows the neckline of the inverse head and shoulders pattern. Market technicians will point out that a measured move is the level to which prices can rise out of an inverse head and shoulders pattern. Conservative technicians state that prices can rise about 75% of the measured move. The measured move is calculated by measuring the distance from the head of the inverse head and shoulders pattern to the neckline. Then the same distance is applied to the point from where prices break out the neckline to calculate how far the rally can go. The measured move is shown by pink vertical lines and works out to 271 points on the S&P 500. In case the S&P 500 only makes the conservative move of 75% it works out to a 203 point rally from the neckline.That should bring the S&P 500 to around 1160 and today the index was just 10 points shy of the target. The area is marked by a yellow horizontal line. The area of the yellow line is significant as prices stayed there for quite sometime in 2004-05. The yellow arrows show that the area acted as both support and resistance for the markets. Hence, it's possible for prices to stagnate in 1160 area for sometime and may be even correct. The other possibility is for the index to make 100% of the measured move. It is prudent for longs to book some profits after such a spectacular rally. The markets still continue to be bullish as prices are above the 30-week moving average, which is used by long term investors to determine market trend. When the prices are above the moving average and the moving average is sloping up the markets are deemed bullish and vice versa. But as the inverse head and shoulders pattern is nearing completion we'd take some profits on long position and enter the market again if the bull continues to stay strong. Chart Analysis |
