Where does the 940 target come from?

Here is a daily chart of the cash S&P 500 going back to the October 2007 bull market top. As you know I am looking at the move up from the March 6, 2009 low at 666 as the first leg of a new bull market. I think this first leg will carry at least to 940. Where does the 940 projection come from?

I think there are two basic principles which are consistently effective for computing support and resistance levels. The first is that the market tends to repeat the lengths of swings. This habit of repetition is often very exact over very short time frames (a few days) but is more of an approximation looking out over longer time frames. The second principle is that the market usually halts its swings very near the midpoints of previous swings. Let's apply these principles to the chart you see above.

The very brief rally from the October 10 low in 2008 and the rally from the November 21 low each carried the market up about 200 points. A 200 point rally from the March 6 low at 666 would carry to the 866 level. In this post I used this fact together with the midpoint principle to highlight the fact that my initial target for this rally was 842 (lower boundary of the blue rectangle). I said that I thought that the market would hesitate for a couple of weeks at that resistance level.

I expected the S&P to eventually push past 842. My next important upside target was 940. Why? The blue rectangle represents the span of the two day October rally which in cash carried from 840 to 1044 (blue rectangle). The midpoint of this swing is 942 (dashed blue line). Note that the November-January rally established its high right on this midpoint (and at a level which made the rally match the length of the October rally). The 942 level is still the midpoint of that range and now, in addition, is the level of a previous top - the January 6 high. So it should prove to be strong resistance again.

Next note the red rectangle. It encompasses the swing down from the 1265 high of the big two day rally in mid-September of 2008 to the 666 low. The midpoint is 965 (dashed red line). So this puts two midpoints (942 and 965) and a previous top (942) in close proximity to one another. This is therefore the first strong resistance that the market will encounter above the 842 level. So that makes it my current target for this first up leg.