S&P 500 Nearing The Upper Limit of Regression Channel

The 65 Thousand Feet View

Last Update on Tuesday January 2, 2018

The S&P 500 is marching, with nary a worry, to the beats of technical patterns. It is approaching the upper limit of a regression channel (78 months and 0.5 standard deviation) on monthly chart (see Fig. C). From February to September 2017, the index  moved up along the linear regression line. Earlier attempts to reach the upper limit line – in 2010, 2011 and 2015 – resulted in either a sideways move or a short decline and reversion to the mean, just saying.

The 14-period RSI has been rising after making a double bottom near 50 in February 2016. It crossed above 70, the overbought territory, in February 2017. In December 2017, it reached 84.23, a overbought reading that was previously reached in February 1996 and July 21997. Both times the index continued moving up.

Fig. C S&P 500 (Monthly) 2-Jan-18

Current Trend: Confirmed Uptrend
Last Pattern: Double Bottom (or horizontal Channel) (broken above in July 2016)
Previous Pattern: Rectangle (broken above in April ’13)
Current Streak: 9 Up months
Last 12 Months 11 Up months
Last High 2694.97 (Dec-17)

High Month Low Month
Last Swing 2193.81 Aug-16 2083.79 Nov-16
Previous Swing 2116.48 Feb-16 1810.10 Nov-16

Last Month’s (December 2017) Pivot Points

Pivot: 2658.03
R1: 2710.55 S1: 2621.10
R2: 2747.48 S2: 2568.58
R3: 2800.00 S3: 2531.65
  • Previous month’s (November 2017) R1 level was broken

Significant Levels:

Support:

  1. Last swing low was 2083.79 (November 2016), which occurred after a brief pullback (110 points) and tested the break above the upper limit of the double bottom/horizontal channel
  2. Fibonacci retracement from last significant swing low (1810.10 in February 2016) to current high (2694.97 in December 2017):
    • The 38.2% Level of 2356.95;
    • The 50% Level is at 2252.54; and
    • The 61.8% Level is at 2148.12;
  3. Lower bound of a regression channel (R in Fig. C), with standard deviation of 0.5, was 2336.07 at the end of Dec 2017; the index has closed below the lower bound only twice since March 2009 – once in September 2011 for one month and then in February 2016, also for one month

Target

  1. The double bottom or horizontal channel pattern (between 2014-to-2016):
    • The 100% extension target was near 2460 and was achieved in July 2017;
    • The 161.8% extension target was near 2660.00 and was achieved in December 2017
    • The 261.8% extension target is near 2985.00, which is approximately 311 points or 11.5% away from December 31, 2017 close of 2673.61
  2. The rectangle or horizontal channel pattern (between 2000 and 2007
    • The 100% extension target was near 2485.39 and was achieved in July 2017\
    • The161.8% extension target is near 3047.34, which is approximately 374 points or 14.0% away from December  2017 close






Update on Tuesday August 1, 2017

Fig: B – S&P 500 (Monthly) 1-Aug-17

Current Trend: Confirmed Uptrend
Last Pattern: Double Bottom (or horizontal Channel) (broken out in July 2016)
Previous Pattern: Rectangle (broken in Apr-13)
Current Streak: 4 Up months
Last Six Months 5 Up months
Last High 2484.04 (Jul-17)

High Month Low Month
Last Swing 2193.81 Aug-16 2083.79 Nov-16
Previous Swing 2116.48 Feb-16 1810.10 Nov-16

Pivot: 2454.01
R1: 2500.33 S1: 2423.99
R2: 2530.35 S2: 2377.67
R3: 2576.67 S3: 2347.65

Significant Levels:

Support:

  1. Last swing low of 2083.79
  2. Fibonacci retracement of 38.2% from swing low of 1810.10 (to high of 2484.04) is 2227.43;
  3. Lower bound of a regression channel (R in Fig. B), with standard deviation of 0.5, was 2222.28 at the end of July 2017; the index has closed below the lower bound only twice since March 2009 – once in September 2011 for one month and then in February 2016, also for one month

Target

  1. The 100% extension of double bottom or horizontal channel pattern (between 2014-to-2016) was near 2460, which was achieved in July 2017; the 161.8% extension target is near 2660.00, which is approximately 90 points or 3.6% away from July 31, 2017 close of 2470.30
  2. The 100% extension of the rectangle (between 2000 and 2007) trading range is 2485.39, which was achieved in July 2017; the161.8% extension target is near 3047.34, which is approximately 577 points or 23.4% away from July 2017 close






Update On Wednesday January 04, 2017

Fig. A: S&P 500 (Monthly) – 04-Jan-17

Current Trend: Confirmed Uptrend
Last Pattern: Double Bottom (broken out in Jul-16)
Previous Pattern: Rectangle (broken in Apr-13)
Current Streak: 2 Up months
Last Six Months 3 Up months
Last High 2277.53 (Dec-16)

High Month Low Month
Last Swing 2193.81 Aug-16 2083.79 Nov-16
Previous Swing 2116.48 Feb-16 1810.10 Nov-16

Pivot: 2234.60
R1: 2278.18 S1: 2253.00
R2: 2286.83 S2: 2236.47
R3: 2303.83 S3: 2227.82

Significant Levels:

Support:

  1. Last swing low of 2083.79
  2. Fibonacci retracement of 38.2% from swing low of 1810.10 is 2227.43;
  3. Lower bound (2222.28) of a regression channel (R in Fig. A) with standard deviation of 0.5 – the index has closed below the lower bound only twice since March 2009 – once in September 2011 for one month and then in February 2016, also for one month

Target

  1. The 100% extension of double bottom pattern is near 2460 which is approximately 188 points or 8.3% away from Jan 4 close of 2270.75
  2. The 100% extension of the rectangle trading range is 2485.39, which is approximately 214 or 9.5% away from Jan 4 close

Double Bottom

S&P 500 made a low of 1820.66 in October 2014 (L1 in Fig. A) and a low of 1810.10 in February 2016 (L2 in Fig. A). The lows are quite close and form a double bottom. In May 2015, the index made a high of 2134.72 (H1 in Fig. A). In July 2016, it tried to break above the intermediate high point. The index struggled to stay above it for three months before falling below it in October. It broke above the high again in November completing the double bottom pattern.

The height of the pattern is 324.62 and the breakout point is 2134.72.

  • The 100% extension target is near 2459.34 which is near the target from the rectangle chart pattern.
  • The 161.8% extension target is near 2659.96
  • The 261.8% extension target is near 2984.58





Update on Thursday November 03, 2016

S&P 500 Monthly - 03-Nov-2016

S&P 500 Monthly – 03-Nov-2016

Current Trend: Uptrend Under Pressure
Last Pattern: Rectangle (broken in Apr-13)
Current Streak: 3 Down months
Last Six Months 3 Up months
Last High 2193.81 in August 2016

High Month Low Month
Last Swing 2116.48 Feb-16 1810.10 Nov-16
Previous Swing 2134.72 May-15 1867.01 Aug-15

Pivot: 2136.83
R1: 2158.92 S1: 2104.06
R2: 2191.69 S2: 2181.97
R3: 2213.78 S3: 2049.20

Significant Levels:

  • Support: 38.2% Fibonacci retracement from swing low of 1810.10 is 2047.23, which also coincides with the lower bound (2044.37) of the regression channel that the index has closed below only twice since March 2009 – once in September 2011 for one month and then in February 2016, also for one month
  • S&P 500 reached the 61.8% Fibonacci extension target of 2138.04 from the last broken chart pattern – a rectangle trading range – in July 2016
  • Target: The 100% extension of the rectangle trading range is 2485.39, which is 301 points or 13.8% away from current price





Update on Thursday September 01, 2016

Current Trend: Uptrend
Last Pattern: Rectangle (broken in Apr-13)
Current Streak: 1 Down month
Last Six Months 5 Up months
Last High 2193.81 in August 2016

High Month Low Month
Last Swing 2116.48 Feb-16 1810.10 Nov-16
Previous Swing 2134.72 May-15 1867.01 Aug-15

Pivot: 2170.78
R1: 2193.98 S1: 2147.75
R2: 2217.01 S2: 2124.55
R3: 2240.21 S3: 2101.52

Significant Levels:

  • Support: 38.2% Fibonacci retracement from swing low of 1810.10 is 2047.23, which also coincides with the lower bound (2044.37) of the regression channel that the index has closed below only twice since March 2009 – once in September 2011 for one month and then in February 2016, also for one month
  • S&P 500 reached the 61.8% Fibonacci extension target of 2138.04 from the last broken chart pattern – a rectangle trading range – in July 2016
  • Target: The 100% extension of the rectangle trading range is 2485.39, which is 301 points or 13.8% away from current price





Update On Friday August 19, 2016

S&P 500 Monthly - 19-Aug-2016

Rectangle Trading Range (1996-2013)

The S&P 500 is still on an ever extending up move. Between 1996 and 2013, markets had two major melt-downs and two major tops. These reversal points formed a nice looking rectangle trading box for the S&P 500. The upper limit is bounded by the highs of 1553.11 and 1576.09 reached in March 2000 and October 2007 respectively. The lower limit is bounded by the lows of 768.77 and 666.79 reached in October 2002 and March 2009. The index broke above this rectangle in March 2013. Since then it has been on an upward trend.

The height of the box is roughly 909 points (from highest to lowest). The measured target of this patterns using Fibonacci levels are: (i) 61.8% extension target near 2138.04; (ii) 100% extension target is near 2485.39; and (iii) 161.8% extension target near 3047.34.

ABCD Pattern (2002-2013)

We can view this as an ABCD patterns too, where ‘A’ is 768.77, the low of October 2002, ‘B’ is 1576.09, the high of October 2007, and ‘C’ is 666.79, the low of March 2009. Using the Fibonacci extension of BC from point ‘C’, we get the projected levels of ‘D’ to be: (i) 2138.04 using 161.8% extension and (ii) 3047.34 using 261.8%

The 2015 high was 2134.72 reached in May, which corresponds with 61.8% extension of the rectangle trading box and 161.8% extension of the ABCD pattern. The index took more than thirteen months to break above this level. The next target in play is 3047.34, which is close to 40% above the current level. The annual rate if change for S&P 500 since 1971 has been approximately 7.13%. Using this average, it will take S&P 500 five years to reach 3047.34.

Technical Indicators

The two major downturns in the index also coincided with the cross-over of 12-months and 24-months moving averages. In April 2001 and July 2008, the 12-month MA crossed below 24-month MA. Both averages and the price was already falling before this cross over.

In May 2016, the 12-month MA crossed below 24-month MA. In July it again crossed above the slow MA. However, the price and the 24-month MA were rising when the first cross over occurred.

Also, in 2000 and 2007, the 9-period RSI was above 70 and making a diverging from the price. So far this time the RSI has not crossed above the overbought levels.

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