Wednesday, November 16, 2005

Projecting an S&P Top

Here is a weekly chart of the cash S&P 500 index.

Over the past two years there have been two extended upmoves. The first began from the 1060 level in August of 2004 and ended near 1228 in March 2005. It carried the average up about 16%. The second began in April 2005 near 1136 and ended in July near 1245, a rally of about 10%.

I think a comparable upmove began this past October from 1168. A 10% rally from that level would carry the index to 1285 while a 16% rally would end near 1355. I think 1355 is a more likely target given the extreme level of bearish sentiment seen in October.

My current interpretation of Lindsay's Three Peaks and a Dome House suggests a top in early May 2006.

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