Thursday, November 08, 2012
Last week the market rallied to kiss its 50 day moving average (black wavy line) and then dropped to new lows for the move down which began from the September 14 top. As you know I think this market is headed down at least into the 1310-20 zone where the current drop would equal the size of the March-June 2012 drop (blue dash rectangles).
However a drop that low would put the S&P well under its 200 day moving average (red wavy line). Since the bull market had already lasted 42 months at the September high such a down side penetration of the 200 day moving average has bearish implications. In this situation I would expect the drop to 1310-20 to be followed by a rally which would carry the S&P back to its 200 day and to its 50 day moving averages.But after that rally I would expect the market to continue lower.
A drop as big as the 2011 drop would carry the S&P down to 1170-90. George Lindsay's three peaks and a domed house formation has been a good context within which to interpret the market's action for nearly two years now. The downside target for the 3pdh is the October 2011 low near 1080.