The major index charts continue bullish in their patterns and suggest that the outlook is that political compromise will come now or later. A move to at or near the prior highs may then be the real test of market strength and the 'Wall of Worry'.
I wrote my last Trader's Corner (12/13/12) article on the prospect for a second up leg that ends up having a move equal to the first; i.e., the initial 80 point rebound in the S&P 500 (SPX) and the 220 points advance scored by the Nasdaq Composite (COMP); from mid-November to early-December.
In terms of chart 'smarts' this is the chart/'technical' rule of thumb for a measured move that suggests a second up (or down) 'leg' will at least be equal to the first leg. The SPX and COMP charts I highlighted from last week are shown below and reflect Closing levels as of 12/13/12.
SPX and COMP initially reversed lower after hitting resistance in the 1433-1438 area in SPX and 3030 in COMP. Price action in the two major indexes then started looking like there was no way that these indices could reach the 'measured move' objectives suggested below. (My 12/13 article can be seen in the Trader's Corner archive or by clicking on this LINK)
ANOTHER WEEK PASSES:
Resistances overcome, at least for now!
Another 'chart smart' trading lesson is the tendency for resistance, especially p r o l o n g e d resistance, once pierced, tends to 'become' subsequent support.
We see this chart rule-of-thumb highlighted below in the case of the S&P chart below. It's especially noteworthy in the COMP chart that follows my SPX daily chart.
A BIG question on the chart patterns seen above and below, at least the one I've been asked by some, is why I was thinking that the back and forth movement (backing and filling) seen after the initial rally off the mid-November low, was a mid-point correction on the way higher, versus a TOP?
Good question and of course the current rally could fall apart if the Market goes into shock so to speak by a GOP/DEM impasse and a pretty real possibility while watching the Washington circus.
In chart or technical analysis terms I will switch to a bar chart view of the SPX and COMP daily charts to better illustrate a point about the common a-b-c (down-up-down) pattern that tends to occur as part of a mid-point correction; as opposed to a pattern that suggests that there is a top forming.
My chart highlights below suggest that both the Nasdaq Composite and the S&P 500, although I only use the COMP chart here for illustrative purposes, have traced out the common a-b-c corrective pattern that often precedes a second up leg.
While the chart looks bullish to date for COMP and SPX, we also all know that bullish (or bearish) strategies here are high risk. I normally find and assume that the chart pattern is a good reflection of how 'fundamental' or underlying market influences will turn out so to speak, this particular market cycle looks dicey in assuming that the charts or technical picture can be relied on for a directional trade.
Buyer beware, but the charts continue to unfold in a bullish manner. Stay tuned for what the New Year brings however! The charts didn't predict 9/11 but the Market then was well into a correction coming into September 2001 and was vulnerable for a further decline.
GOOD TRADING SUCCESS!