Volkmar Guido Hable | StockMarket SPX Technical Analysis and Update


In my last update of about 4 weeks ago I wrote the following: “An ascending wedge has formed in the past months. This represents a fairly reliable pattern in the S&P500 as well as the German DAX large cap index. Other indices display a less reliable reaction to that pattern but may follow suite to those two leading stock indices. The pattern typically (but NOT always) is characterized by high speed corrections. The current year long rally looks quite tired and is coming to an end. Expect a corrective decline………..”
The market development has followed my forecast and has quite advanced with its correction since I last updated my comment. The current decline is not over.
The first target zone of the expected correction is the green rectangle on the chart. This is major support and should trigger a multi-month rally once reached. This assumption of course is subject to the hoped for lack of any negative external factors. Shock reactions in the market to unforeseen events can drive markets usually lower than any technical targets would indicate. The Greek mess seems to be priced into the market at this point and should not worry investors too much.
Time: time the current decline should take is anything between 23% to 48% of the time it took to complete the rally since the low in July 2011. This puts the anticipated end of the correction somewhen into the end of June to mid-September.  A large range admittedly, but looking into the big crystal ball is a bit difficult at this point in time for one reason: the summer months are ahead of us during which trading usually slows down significantly and might drag out this decline.
In my last update I wrote: “A pennant has formed (please see formation at the start of the left green arrow). An a-b-c pattern looks almost complete and should be followed by further selling. A break below the pennant may be a good short opportunity with stops very close by. Another technical possibility is the test of the highs of the wedge followed by a decline.” Anyone who has followed the “short” recommendation should have earned some money by now. Continue to short but keep stops close by.
  1. It is election year and traditionally election years in the US have been up-years with quite a positive stock market balance.
  2. By consensus of all reasonable people we have a very significant inflationary problem in the leading economies. This means more upside for gold and stocks.
These fundamentals represent a significant risk to all investors betting on falling share prices.
  1. CONCLUSION: Expect a continued decline into the target zone marked by the green rectangle, followed by a rally (later this year) above recent highs. See the purple arrows for a first indication. I will comment on commodities and particular gold in the next couple of days whenever I have time.
  2. DISCLAIMER: all the usual disclaimers apply, in particular do your own research please and don’t rely on me for investment decisions. I am using mathematical FEM methods not depicted here to come to certain conclusions and while these work for me most of the time they may not be suitable for everyone.
Location: Florida, USA

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