Thursday, November 8, 2012

SPX Target Zone

Now that 1400 is gone, SPX is firmly in sell-the-rallies mode. Let's assess a possible target zone for this surprising move. Why surprising? This is not what most on the street expected. We are in the middle of what is usually a very bullish time of the year. With most of the year-end targets at 1450 - 1500, trade below 1400 is making a lot of market players extremely nervous. Situation like this results in forced selling of late long positions (chasers) initiated above 1400, which itself feeds even more selling by momentum traders, who will be selling on multiple technical breakdown signals. Those longs who got into SPX at lower levels will also want to lock in and protect their profits, and will sell here as well. That's a whole lot of sellers at the time of slower earnings growth, U.S. fiscal cliff, and Eurozone worries at the forefront.
I put together a quick chart to display what levels this move may be targeting. Do not get greedy, take what market gives you, and expect short-covering rallies on the way.

click on chart to enlarge


  1. Hi

    Great anticipation of a downside move - truly top notch market's technicals interpretation. According to your target zone you are expecting a continuation of a decline into 1220-1340; don't you think it's a tad too ambitious, keeping in mind that the upcoming 2-4 months is one of the most profitable period on the historcial basis ?!
    Does a possibility of a move above SPX 1500 within next 3-5M fit into your scenario analysis?

    Would really appreciate if you'd share the studies that are used in AAPL target zone/trend projections on the 16 Sept & 28 Oct posts ?

    good luck trading and all the best


  2. Hi Roman, good points.

    As I said in my post this move is surprising to many market players, considering seasonality. I think that overall trend will be down, with short-covering rallies on the way, in the next 2 months or so. I am not rulling out 1500, simply because in trading anything is possible, but it is a least likely scenario in my current assessment.

    AAPL target zone and trend projections were derived by applying channel extensions. At this point you can start treating it as a linear regression channel, so we are closer to mid-line with possibility of a bounce in this 525-550 zone.

    Thank you for reading!