The S&P 500 – A word of warning
Updated
The S&P 500 has experienced an incredible run ever since its low in 2009, surging from $652 to a top of $2869. That is an incredible rate of return totalling +340%. Or an annual rate of return just under 18% - and that still leaves out the return gained through dividends. I want to provide some word of caution in this post, looking at the graph and looking at long term average rate of returns for the stock market as a whole. The latter lies around 6 to 6,5%. Hell, you might even say 8% or 10% for that matter. The point is that, we have experienced a prolonged period now providing us 18% CAGRs. Of course, it depends on when you put your starting point, if you take the top of 2007, that CAGR is instantly quite lower. So, this by itself does not provide us enough information, but does give us a sense of how strong this bull market has been.
Now, I don’t want to overly focus on more than the mere technicals here, as they already speak for themselves:
1) TREND CHANNEL SINCE 2009: Looking at the trend channel the S&P 500 has been in ever since the 2009 bottom, one can see it has been moving within its boundaries very nicely. HOWEVER, as of January 2018, we broke through the resistance and 2) ALMOST even touched the LONG LONG term (yellow) resistance line that traces back to 1982. Needless to say that such a resistance is HUGE and not sustainable to break for even a short term. We didn’t reach it though – but it was close.
We ALSO went out of the white trend channel since 2009, which is also not very sustainable.
3) The reaching of this high was corrected rapidly and you can see the Fibonacci levels (drawn +- on the 2017 starting point) to which it retraced quite precisely. The very logic conclusion of purely this picture is that price HAS to stay within this white trend channel - unless a very short term temporary upward break-out, or a mid-term downward correction: We are therefore talking limited upward potential, and a lot of downward potential.
Looking at the white support, we see that 2300-2400ish is within a quite plausible first correction range. That would signify a healthy correction in a still upward trend channel.
In a more extreme scenario, you can see that the yellow support line is also exactly where the 2009 crash hit its bottom. For today’s chart, that would result in a downward potential up to 1000ish more or less (a bit more). I also highlighted the fibonacci retracement levels taking into account the 2009 market bottom. This gives us a bit more insight into the downward targets in case of a correction: $2398 (78,6%); $2029 (61,8%); $1770 (50%); $1510 (38,2%) and $1190 (23,6%).
4) Looking at stochastics, we see the monthly still in an upward trend, but that will inevitably make a death cross. 5) Moreover, RSI is heavily overbought at 87-ish.
6) We ALSO see a spinning top candle in the Heikin Ashi chart, which is a typical trend reversal indicator.
Conclusion:
I don’t think we are there yet in terms of a big market crash - momentum is still intact - but it seems we are reaching a – technical at least – market top with maybe 10% left and much more risk than reward…
Now, there will need to be some fundamental market catalysts to trigger any correction(s), but as the title says… this is just a word of warning, and we should never forget to have a look at the charts.
Feel free to comment / contradict / etc. - the better we are prepared together against any type of market movement, the better ;-)
And just as a closing remark - have a look at the daily where we just made a golden cross and have already gained a large part back from that recent "semi-flash" correction moment where the S&P dipped 7%!
Now, I don’t want to overly focus on more than the mere technicals here, as they already speak for themselves:
1) TREND CHANNEL SINCE 2009: Looking at the trend channel the S&P 500 has been in ever since the 2009 bottom, one can see it has been moving within its boundaries very nicely. HOWEVER, as of January 2018, we broke through the resistance and 2) ALMOST even touched the LONG LONG term (yellow) resistance line that traces back to 1982. Needless to say that such a resistance is HUGE and not sustainable to break for even a short term. We didn’t reach it though – but it was close.
We ALSO went out of the white trend channel since 2009, which is also not very sustainable.
3) The reaching of this high was corrected rapidly and you can see the Fibonacci levels (drawn +- on the 2017 starting point) to which it retraced quite precisely. The very logic conclusion of purely this picture is that price HAS to stay within this white trend channel - unless a very short term temporary upward break-out, or a mid-term downward correction: We are therefore talking limited upward potential, and a lot of downward potential.
Looking at the white support, we see that 2300-2400ish is within a quite plausible first correction range. That would signify a healthy correction in a still upward trend channel.
In a more extreme scenario, you can see that the yellow support line is also exactly where the 2009 crash hit its bottom. For today’s chart, that would result in a downward potential up to 1000ish more or less (a bit more). I also highlighted the fibonacci retracement levels taking into account the 2009 market bottom. This gives us a bit more insight into the downward targets in case of a correction: $2398 (78,6%); $2029 (61,8%); $1770 (50%); $1510 (38,2%) and $1190 (23,6%).
4) Looking at stochastics, we see the monthly still in an upward trend, but that will inevitably make a death cross. 5) Moreover, RSI is heavily overbought at 87-ish.
6) We ALSO see a spinning top candle in the Heikin Ashi chart, which is a typical trend reversal indicator.
Conclusion:
I don’t think we are there yet in terms of a big market crash - momentum is still intact - but it seems we are reaching a – technical at least – market top with maybe 10% left and much more risk than reward…
Now, there will need to be some fundamental market catalysts to trigger any correction(s), but as the title says… this is just a word of warning, and we should never forget to have a look at the charts.
Feel free to comment / contradict / etc. - the better we are prepared together against any type of market movement, the better ;-)
And just as a closing remark - have a look at the daily where we just made a golden cross and have already gained a large part back from that recent "semi-flash" correction moment where the S&P dipped 7%!
Note
On the time frame of the original post's graph (1M) we already see a reversal accompanied by bearish crosses in the indicators:On the weekly graph and the daily graph we see the red line as support for the moment:
On the daily, you can see that we are still on the support level (red line), but the funnel is narrowing and the only logical way is out down. Of course, some stubborn smallish upward momentum can remain before that happens.
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