Thursday, May 05, 2005

S&P Boxes on May 5

Above you will see a daily chart of the S&P 500 index. I have drawn horizontal lines representing my current estimates of the position of relevant price boxes. Let's see what deductions we can make from the price action relative to these boxes.

The index delineated a 27 point box (red lines) with low at 1164 on March 29 and high of 1191 on April 7. The downtrend from the March 7 top at 1229 continued into the next lower 27 point box whose low was projected to be at 1137. The actual low of the index on April 20 was 1136.

Not only was the 1136 low at the low point of a short term , 27 point box but it also was at the low of a long term box. In a previous post ("Going Up") I noted that the bull market in this index had progressed in a series of 186 point boxes (green lines) from the 768 low in October 2002. There was a projected 186 point box with low at 1140 and a high at 1326. The 1/2 point of this box was 1233 and this was the resistance level which is associated with the 1229 top of March 7. The fact that the 1136 low was at the low point of both a long term and a short term box made that level a very attractive buy level as noted in my "Going Up" post.

The index has broken above the 1164 high of its lowest short term box (red lines) and this is a lagging indication that the downtrend from 1229 has been reversed. As I write this the market has reached the midpoint of its 1164-1191 short term box and a reaction down to the high of the last box at 1164 would be a normal expectation.

I think the market is now headed for the top of its long term box at 1326. The fact that the reaction from 1229 to 1136 covered almost exactly the lower half of a long term box implies that an intermediate term box (blue lines) defined by this reaction also projects a top near 1320. The Lindsay fold back chart which was discussed in a post yesterday is telling us that this 1320 top is likely to occur in late September 2005.

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