Wednesday, April 14, 2010
"Relentless" is a good title for the market movie we have watched during the past 10 weeks. The ES has rallied 170 points (16%) without even a single break of as much as 30 points. It is worth comparing this performance with the rallies off of the March 6, 2009 bear market low and off the July 8, 2009 intermediate swing low.
In the former case the ES rallied 134 points (20%) before its first 30 point break set in. In the latter case the ES rallied 150 points (17%) before its first 30 point break. It is also worth noting that the rally off of the March 2009 low eventually carried the ES up 291 points (44%) before its 90 point, June-July 2009 drop. The move up from the July 2009 low carried 282 points (33%) before the drop of 108 points in January-February 2010.
From these observations I draw two conclusions.
First, the market is about due for a break of 30 points or more. It is up 160 points from its February 5 low, more points than either of the two previous upswings put in before their first 30 point breaks. Creative numerology suggests the progression 130 - 150- 170. The ES is also up 16% from its February 5 low without a 30 point break as compared with 20% and 17% for the preceding two swings.
Second, the move up from the February 5 low has a fair amount further to go. Engaging again in creative numerology, we may well see the the pattern 44% - 33% - 22% of percentage gains. A 22% advance off of the February 5 low would carry the ES to 1270. A 280 point advance would carry to 1320.
I think the odds are good that the ES will break 30 points or more from resistance in the 1210-15 zone. The 1214 and 1213 levels (red solid line) are the midpoints respectively of September 2008 rally from 1137 to 1291 and of the drop from the 2007 high at 1587 to the October 2008 low at 837. The July 2008 low which followed the Fannie Mae, Freddie Mac rescues was 1200 (red dash line). I think the 1200 level has yet to make itself felt as resistance and when it does so the market can easily break 30 points or more. Note that the September 2008 low was 1137 and the ES rallied 10 points higher before it broke more than 100 points this past January. A similar performance would have the ES rally to 1210 before the 1200 resistance makes itself felt.