We can expect to enjoy higher levels on the US S&P 500 in the coming weeks, with the index likely to rise by 2.6% to 1,422, based on technical charts.
The S&P 500 passed the test level at 1,378 since my last appearance on Switzer on 20 June 2012 (marked ‘J’ (1,358) on the chart below). This level (marked as ‘l’ on the chart) was resistance that needed to be cleared before the higher level of 1,422 could be seen (marked ‘T?’).
In the past five weeks, the market has traded in a nice ‘stairway up’, testing the ‘l’ level. It finally passed this test last Saturday morning, with the index closing at 1,386.
The implication for the globe is that we should see indices track higher in the coming weeks. This positivity is also reflected on the German Dax Index – another important index for global stocks.
The biggest negative we face for stocks is reflected in the Chinese Shanghai index, and I alerted you to this two weeks ago in: Global stocks waiting for China to turn. I cannot overstate the importance of this index, which now sits below my line in the sand of 2,134.
I am due to appear on Peter’s show tonight where I will discuss why I’m positive on the US, but importantly, why Shanghai is a significant negative threatening the ‘muddle through scenario’.
We are currently at a very important turning point on the charts.
S&P 500 technical chart
1) This is the muddle through scenario. Everything feels like it is happening in slow motion. This is what one ought to expect when one relies upon government intervention to get us through the global troubles that we face.
2) Daily indicators are giving the signal ‘steady as she goes’, threatening to break higher.
3) We have turned the previous ‘T?’ at 1,422 into a firm target following the price action of last Friday night. This is marked ‘T’ on the chart and is 2.6% higher.
4) The old level to be observed higher above 1,422 is now turned into a Target with a question mark “T?”. It is marked on the chart at 1,488. This is 4.5% higher. We expect to encounter some more tests after we get to 1,422, but before we get to 1,488. This point is positive because we are able to focus on a level which is 4.5% higher while not giving it a Target status.
5) Weekly time frames look fine. This longer time frame has no nasty surprises in the chart and concurs with the daily charts that we should enjoy higher levels.
6) Momentum is still on the upside, with the 200-day moving average still pointing firmly up as indicated by the yellow line.
7) Germany is trading on a ‘steady as she goes’ basis.
1) Shanghai is a significant concern. So much so that we’ve given it the equivalent of another two negatives. The significant support level of 2,134 has been broken and remains broken. The index sits at 2,128.
2) Shanghai – the only reason we’ve not given this point six negative points to completely negate the above positives is that it has only broken the line in the sand by 0.3%.
3) Shanghai has closed below the line in the sand level of 2,134 for two days now. We hope that given the significant volatility in the Chinese market, we are slightly out in our levels analysis and this represents the bottom. If our analysis of levels is correct, and we hope we are wrong, Shanghai has 6% to fall within an uncertain range of 22% to find another base.
4) The weekly time frame mentioned has no surprises at this point, but does have some indicators hinting to the fact that we have had a steady upward run now since October 2011. For nine months we’ve been travelling nicely. These sets of indicators hint of another real test, perhaps at 1,488. Hopefully, the test will be like a ‘sell In May’ type test.
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