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Chart of the week – US S&P500 – Bullish extension in play, pullback due

Posted By Lance Lai On In Markets | No Comments

In this asset allocation game we are playing, there really are only two aims.

  1. Buy low
  2. Sell high

We are very close to, or at, all-time highs for many stock markets around the globe. This is illustrated very well by the US S&P 500 Chart below. The balance is six bearish arguments verses four bullish ones. This market is at a high with arguments mounting that point to a pullback being reasonable.

The question that remains on many minds is, “I’m not at my allocated weighting. Should I buy now?”

This is a very difficult question, because the answer is, “It depends.” And it depends on very many things. Your time frame, your outlook, etc.

For this market, if you are a buyer here and now, then you ought to have clarity that you are buying for a longer term because from an index stand point, you are buying high and breaking the buy low aim.

My concluding comment to the perplexing question of whether or not to buy now remains the same as the last time I wrote on this chart on January 29, 2013. And that is “If your time frame is longer term, then there is also the argument to simply buy some more now if you have not already done so.”

On the chart

The tone for this chart’s analysis was “set up” on the Switzer show of 29 November 2012, as marked on the chart.

The breaking of the “G” which stood for Good Level of 1,448 was the set up for what we have now, a very “Good Year” so far.

On the 30 January’s higher levels of little “l” appeared at 1,528 and larger levels of “L” at 1,552 were identified as possible high side levels to reach, but neither were “necessary”.

February saw what looked like a “nice retracement” coming, only to see that reverse to the point where an all-time high of 1,576 – marked as “R” for Resistance – as now being the level to watch for. This is now only 1% higher and we expect some answers will be provided shortly as this Resistance Level is in sight.
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Bullish indicators

  1. The 200-day moving average is firmly pointing upwards now.
  2. Weekly time frames indicate more upward momentum may be expected without a blow out to the top side. As ridiculous as it sounds, a projected “topside” of 1,744 – 11.8% higher from here – is technically possible.
  3. On a daily basis, the bullish nature of this market means it is possible it may continue to trade to the upside without a meaningful pullback for a little longer.
  4. There is little doubt we are now well and truly trading to the upside of the “G” = Good level of 1,448.

Bearish indicators

  1. Indicators are topping out on daily time frames.
  2. Indicators are ripe for a pull back on weekly time frames.
  3. Last year the September 14, represented a height of bullish sentiment where the index was 9.3% above the moving average. Now we are 10% above the 200-day moving average.
  4. We are fast approaching the all-time high of 1,576 set prior to the GFC on October 11, 2007. This will be a level closely watched by all, and there ought to be some selling at this level. How it trades here will set the tone for how fast we move to even higher levels. This is only 1% higher from where we are today.
  5. The run up now from the last major low of 1,343 on 16 November 2012 is 16.1% to date. In four months, this is substantial and arguably too much in such a short time.
  6. March 2000 highs and Oct 2007 highs are all around our levels now. The Chart looks too “dangerously” nice.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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