Tuesday, November 8, 2011

Let it Be

Since 1994, on the $SPX monthly chart, we have closed the month below the 20SMA twice (Before September of this year). Each time we closed beneath the 20SMA on the SPX monthly since 1995, it resulted in a slight retest of the 20SMA GENERAL (but not even close to the actual 20SMA) area, but could not come close to getting back above it or even retouching it by any stretch whatsoever, and subsequently declined over 50 percent each time.

This September was the third time since 1995 we closed beneath the 20SMA on the monthly chart. Odds say, we would decline 50 plus percent, right? Well, for the first time since 1995, we broke the 20SMA on the monthly chart, and closed safely above it the next month!

So what to expect? The closest resemblance to this action in 20 years is 1994 when we closed below the 20SMA monthly, closed ever so slightly above it the next month, and than hung around the general area for around a year before we broke out majorly in 1995. So we may see a very similar thing now. Just like in 1994, even though we broke below the monthly 20SMA, there were a ton of bulls who kept a bid for a year until they took control, similar case here where even though we closed below 20SMA for the third time in only 15 years, the case may be where there are still a ton of buyers here, apparent from the close the very next month back above the 20SMA monthly.

So we may have a battle in this range until someone gains definitive control, just like in 1994 ( A green rectangle is around it). Two things to watch. One is that even though we put in a higher low last month, the RSI made a lower low which is a bearish divergence ( The RSI is circled in pink).

Also, The trendline from the start of this long term uptrend since 1994 (pink line) was broken, and this bullish SMA monthly action could mean we retest the underside at 1450. What is also positive is that we had a very successful retest of the broken downtrend line from the year highs at 1500 ( I circled the successful retest in light green). So we can easily test 1450, underside of longer term uptrend line since 1994 when we broke out. So dont fight the trend. Whatever your bias is, watch these levels of reference, and trade accordingly. We have free air up ahead until then. So until than, let it be.Cheers.

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