Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Graham Summers’ Weekly Stock Market SPX Forecast

Stock-Markets / Stock Markets 2010 Aug 10, 2010 - 12:41 PM GMT

By: Graham_Summers


Best Financial Markets Analysis ArticleSince the July bottom, stocks have formed a bearish rising wedge pattern. If you’re unfamiliar with this pattern, it occurs when you have a security that gradually trades higher within an ever-tightening range between two trend lines.

In order for this pattern to be valid, the trend lines have to be validated by multiple touches. As you can see with this latest bearish rising wedge, the trend lines have both been validated by the market bouncing off of them multiple times, telling us that investors consider these lines highly relevant.

Now, bearish rising wedge patterns are considered “termination” patterns or patterns that occur during the formation of significant tops. This is because once the pattern breaks the security usually returns to the base of the pattern relatively quickly. This means that when this current pattern breaks, we should see the S&P 500 back at 1,010 without much delay.

The issue now is determining whether or not the pattern is complete. Judging from the trend lines and Friday’s action, we’re not quite there yet.

As you can see in the below chart, Friday’s collapse brought stocks right down to the bottom trend line. Had we broken below the trend line, especially on a closing basis, it would be clear we were on the way down again in a major way.

However, rather than doing this, the trend line served yet again as key support and stocks rallied hard from this level into the close, which means the pattern remains “in play.”

This leaves us with the potential for another, final push higher to test the upper trend line around 1,140 or so. This would coincide with a trend line forming in the S&P 500’s Relative Strength Index (RSI), which should pass into overbought territory (70+) right around the time a final push would bring this pattern to completion.

I’ve drawn in the trend line for RSI, as well as the trend lines for the bearish rising wedge on the chart below. I’ve also included the downward trading channel stocks formed during the initial leg down for the collapse begun at the end of April (the collapse for which this latest rally is the correction or “bounce”).

You may be asking, do stocks need to rise to the upper trend line (1,140)

The short answer is NO.

We could see what’s called a “truncated” final push higher. This occurs when the final push is weak and doesn’t quite make it to the upper trend line because the bulls simply don’t have the energy.

This is actually quite common during corrective rallies like the one we are currently experiencing. And it would greatly add to the bearish case for the market today as it would indicate that the bulls couldn’t even rally the market to the expected level dictated by the pattern the market is following (and which every technical analyst/ trader is aware of).

However, I think the odds favor a final push higher. Traders are actively anticipating the announcement of QE 2 at the Fed’s FOMC meeting this Wednesday. Given that stocks tend to rally into these meetings, as well as the fact that the US economy is clearly heading into another recession (in the context of a Depression, no less), it seems likely to me that the majority of portfolio managers and traders will gun the market early this week (Monday-Tuesday) in anticipation of QE 2, which would allow the market to complete the bearish rising wedge pattern, break into “overbought” status, and be ripe for a significant top around mid-week.

The Fed’s actions are of course game changers and the announcement of QE2 could potentially kick off yet another rally on top of this one started early July. However, if QE 2 is NOT announced, then stocks will have completed a bearish pattern, become overbought, and be ripe for the collapse to 1,010 (at the minimum) that the rising wedge is predicting on the S&P 500.

I cannot pretend to know what the Fed will do, but given the approaching election and the political backlash additional monetization would cause, the announcement of QE 2 seems unlikely at this point. 

After all, the Fed has clearly stated that it views the stock market as the key gauge for economic health in the US. As I write this, stocks are only 8% off their one year high. If the Fed cannot stomach an 8% slide in stocks after a 60+% rally over the course of 13 months, then the financial world is in major and I mean MAJOR trouble.

Indeed, for the Fed to announce QE 2 now would signal not only that QE 1 failed, but that they have lost control of the markets and we are heading for a time of high systemic risk even greater than Autumn 2008.

Remember, the only thing propping the market up from March 2009 onward was the view that the Fed could pull us from the brink.

For the Fed to announce QE 2 now, when the market is still 68% up from the March 2009 lows, would destroy any faith the financial world has in the Fed (personally I never had any faith at all, but that’s a different story). This in turn would mean the market breaking to levels that would make 1,010 on the S&P 500 look absolutely heavenly… or the Dollar imploding, pushing the market higher in nominal terms, but at the cost of a dramatic collapse in the real purchasing power of stocks.

So I think the odds favor no announcement of QE 2 on Wednesday and “the next leg down” beginning for stocks around that time. At least that’s the roadmap I’m following right now.

Good Investing!

Graham Summers

PS. If you’re worried about the future of the stock market, I highly suggest you download my FREE Special Report detailing SEVERAL investments that could shelter your portfolio from any future collapse. Pick up your FREE copy of The Financial Crisis “Round Two” Survival Kit, today at:

Graham Summers: Graham is Senior Market Strategist at OmniSans Research. He is co-editor of Gain, Pains, and Capital, OmniSans Research’s FREE daily e-letter covering the equity, commodity, currency, and real estate markets. 

Graham also writes Private Wealth Advisory, a monthly investment advisory focusing on the most lucrative investment opportunities the financial markets have to offer. Graham understands the big picture from both a macro-economic and capital in/outflow perspective. He translates his understanding into finding trends and undervalued investment opportunities months before the markets catch on: the Private Wealth Advisory portfolio has outperformed the S&P 500 three of the last five years, including a 7% return in 2008 vs. a 37% loss for the S&P 500.

Previously, Graham worked as a Senior Financial Analyst covering global markets for several investment firms in the Mid-Atlantic region. He’s lived and performed research in Europe, Asia, the Middle East, and the United States.

© 2010 Copyright Graham Summers - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Graham Summers Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules