Wave Analysis for the S&P 500

10/19/2009 11:18 am EST


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The chart above, Weekly S&P500 Futures, shows the price action since the October 8th peak at 158675. It’s clear the first leg down bottomed at 125550 on January 22, 2008.

A corrective wave (2) stalled at 144100 on May 19. The third and most severe leg down ended at 66575 during the first week of March 2009. It appears that we are close to completing corrective wave 4 as we approach weekly T-line resistance at 110400.

Once wave 4 is complete, we anticipate the fifth and final wave 5 down to commence. The first sign the bears are back in control of market is a solid close below Weekly MLR at 107525.

The next major hurdle will be the Weekly AMA at 100125. The Rule of 7, a forecasting tool that uses the first leg of a trend to calculate three primary objectives continues to support the long-term bear trend.

A rally above Objective 1 at 112300 would favor a more bullish outlook; whereas, failures here trigger a selloff that may lead us to new lows projected to bottom in February 2010 at or near 42650.

Investors need to know the market is at a crossroad. Either we punch through the 110400/1123.00 resistance and rally or fail here and potentially trigger a new wave of selling targeting the March lows and beyond….

By Michael Riordan of FocusTrading

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