MAILBAG QUESTION:

"hi. you suggested a s&p move to 1980-1985. Not 2000 and a big milestone not far above? what in the charts kept you bullish when others were waiting to see how much further upside?"

MY RESPONSE:

Getting bullish after the mid-April lows:

1.) The S&P and Dow retraced approximately 50 per cent of their prior advances, which is a 'normal' or nominal type correction in a bull move. I expected a move higher after that and long-term charts had a bullish uptrend pattern as well.

On a daily chart basis, we were seeing a pattern of higher lows and a sideways pattern establishing the low end of a trading range or in chart pattern terms, a Rectangle formation, with 2 or more highs and 2 or more lows at the same levels.

2.) Rectangle patterns, within an overall uptrend, are assumed to be 'consolidations' ahead of another move higher, at least until 'proven' otherwise. Proven otherwise in this case would be a decisive DOWNSIDE penetration of the LOW end of the Rectangle pattern.

3.) Due to the aforementioned tendency for lateral moves in a bull market to resolve to the upside, I projected that the S&P would break out HIGHER and applied a technical 'rule of thumb' for a minimum upside objective for breakouts of lateral trends: Measure the point distance between the High and Low end of the rectangle (aka 'trading range') and ADD that to the upper resistance line.

These points are illustrated on the SPX and OEX daily charts that follow. As well, the overnight upside price gap highlighted below for SPX is a good predictor for a next up leg. That said, the price gap in question may get 'filled in' as it would not be uncommon for the SPX to pull back to the prior line of resistance and test that level as 'new' support; i.e., resistance, once penetrated, tends to 'become' subsequent support. Stay tuned!

As for SPX going to 2000? Why not! If 1980-1985 is seen, the bulls will try to keep going and hit the major milestone of 2000.

S&P 100 (OEX) DAILY CHART:

We see the same rectangle type pattern in the OEX and the 'box' is even better defined so to speak. As highlighted below, there was an initial 'false' upside breakout, which wasn't seen in SPX or barely, and I discounted it as a breakout 'failure'; well, provided that the pattern of higher relative (pullback) lows continued which it did in OEX.



STRONG BOTTOMING POTENTIAL SEEN WITH NASDAQ:

In the case of the actively traded Nasdaq 100 (NDX) seen below, as well as the benchmark Nas Composite, double bottoms formed, although initially, we had to conclude that they were 'potential' bottoms only. I tend to find a lot to like in assuming a bottom HAS formed, especially when NDX (and COMP) got to fully oversold extremes (not shown on this chart below).

MEASURED MOVE OBJECTIVES:

Moreover, after the 1st. up 'leg' in NDX completed, from 3114 to 3613, followed by a subsequent pullback to 3506, a so-called measured move objective (another rule of thumb) would suggest that a SECOND upswing would 'at least' equal the price distance carried by the first advance. Such a second up leg objective would be to 3705 and of course NDX sailed past that today. Still, such measuring 'rules of thumb' should be taken as possible MINIMUM objectives only.


GOOD TRADING SUCCESS!