Upward channels normally resolve to the downside. A drop below the lower channel, with confirmation, Could indicate a short term reversal of index.

The 5 minute intra-day chart below would indicate that we are in an upward channel with the next resistance at $1,376. Technically speaking, the moving averages are in a very bullish formation. The 50 day average just crossed the 200 day last week to the upside creating a “golden” cross. All three moving average are in the right order (200 on the bottom then the 50 and then the 21) an it in an upward direction.

Lets’s see what the next few days bring. I think then has to be some resistance at $1376.

Looking at the monthly chart for the S&P500 and we see that we are approaching resistance at 1370 that was set in May 2011.

The daily chart shows the strong movement past the low 1300’s with our next resistance at $1,357 and we are still up an up channel. One could conclude that we are over due for a few down days.

The close price is above the 200, 50 and 21 period moving average, which is bullish.

The S&P500 close on Friday was right at the upper channel of wedge channel. If the price can get through this resistance, the next stop would be the previous high of $137.18, set in Q2 2010, with the final resistance at $156.70, which was set in Q3 2008.

The S&P can break out of the wedge to the upside this week or go down again and test the lower channel of the wedge, around $112.

Daily Chart of S&P500

The daily chart giveS you a little more insight into the price behavior running up to the wedge upper limit. You can see on the daily chart were have traded in a range that is an upward channel and we closed Friday towards the bottom of the channel.

Upward channels most often resolve to the downside. So this week we could stay in the current channel and head up towards the $137.18 resistance or break out of the channel to the downside with the first downside resistance coming at the moving average of approximately $126.

5 Minute Chart S&P500

For the aggressive or short term trader, looking at the 5 minute intra-day chart, you can see that the close price has resisted the 200 period moving average. It looks like we may test this early this week and if it holds, it could signal a short term buy. If the moving average does not hold, we will see $130.5 next for the SPY.

A few point move in the S&P500, and the SPY ETF, does not sound financially rewarding. You can double or triple your returns by using 2x and 3x ETF’s of the SPY. The 3x ETF for SPY bearish is UPRO and the short position is SPXU.

The three moving average are all now downward pointing and in the right order. The slower (200) is first with the second being the 50 and the fastest (20).

The 50 period moving average did not penetrate the 200 moving average. This would increase the bearish sentiment if this happens today and based on the futures this morning, we may see it real soon.

Monthly Chart of the S&P 500

Looking at the monthly S&P500 chart filters out some of the noise and the direction becomes much clearer.

1. It is clear that we had two prior highs in 2000 and 2007 and the most recent high in 2011.
2. It is clear that we are moving is a general downward direction with 750 as a target price range.
3. The closing price of the S&P500 has already crossed the 21 and 50 moving average.
4. The 21 period moving average has turned down while the 50 and 200 continue to in their upward trend
5. The index is at the 200 moving average and moving through this is a pyschological resistance.  Movement below this could signal a strong continued move to the downside is in store for the market.

Weekly Chart of the S&P 500

The weekly chart does dispute the monthly chart or provide any additional insight at this time. 

The chart is resisting at the 200 period average on this chart.

A slight move downward this week will turn all three moving average in a downward and negative trend.

Daily Chart of the S&P 500

 The daily chart of the S&P 500 shows a clear downward channel.  The close on Friday marks the high of the channel and a normal action now is one of the following:

• Continue to move up and break out of the downward channel
• Move down with the bottom resistance line as the short term target.

A downward channel is a bullish stock formation and is frequently resolved to the down side.

Summary of the S&P 500 Index

The long term diection of the index based on the weekly and monthly is down.

The daily chart has been on a short term up trend for a few days and has reached the upper channel of resistance in the overall downward channel.

Lets see what happens in the market today.  Please give us your comments.

The next resistance is 119 for SPY.

The price is also crossing the intraday 200 day moving average, another bullish sign.

Keep stops tight and remember, we are in a market that still have a longer term bearish technical bias.

The faster moving averages also crossed and are pointing upward.

This may be a short term move - so keep tight stops.

Remember, the current bias of the market is still downward.

The upward movement did not break out of the intra-day 15 minute chart of the SPY.

It looks like we may come closer to testing the recent lows.

Need to see the SPY break out on the upside by coming out of the descending channel.  A breakout to the downside would require the S&P to make a new low.

Lets see what this week brings.  Share your thoughts.

The recent chart action on the S&P500 is very similar to the chart action on the weekly chart back in 2008.

The similarities include:

• Come off a a reasonably long bull run
• Penetrated the 200 day moving average
• Action on above average volume

The lessons we should learn from 2008 is:

• Market traded in a horizontal channel for about 2 months before going lower
• Never penetrated the 50 DMA while in the channel
• The price drop after going below the horizontal channel was much larger than the one that brought us to the channel.

Looking at the monthly chart of the S&P500 we can learn more:

• The drop in 2008 took us back to where the S&P started the bull run in 2003
• The bull run started in April 2003 at $84 and topped in October 2007, four and a half year and, at $152 - almost doubling.
• The bull market ended in April of 2009 - one and a half years to wipe out 4 1/2 years gains.

On a positive note

• we are currently above the 200 DMA and it could provide some much needed resistance.
• If we resist the 200 DMA on the monthly chart, we could be off the the races on the upside.
• In 2008 we already had the lower moving averages sloping downward.  Currently the three moving average are in bull order.  The slower on the bottom of the stack and the slower on the top.

The index is truly at a tipping point.  Strictly looking at the charts one would have to conclude that we have some downside left to come.

The channel in 2008 traded between $125 and $143, a 14% move.  Currently we don’t a clear channel defined yet.  The recent lows of 110 on the S&P  have seem to hold.  So this may be our bottom for the time being.

The current state of the index as show in the 15 minute chart would indicate that the recent low of August 9 is still in place but could be challenged.  A sniping short term buying opportunity may occur when the index moves above the descending channel and/or the intraday moving average cross and move up.

Lets see what this week brings.  Share your comments.

Technically, the indexes are setting up for possibly 3 options as far as candlesticks go.

opt1 - trend reversal

 The first option is to maintain the current lows or go lower and this would indicate a short term reversal.

Option 2 - Bullish

The second option would be that the bulls fight back and at the end of the day close higher.  After eights days up and today being a Friday, chances are not strong that this could happen.

Option 3 - trend reversal

The third option is that the bulls fight back but still end up closing lower.  This candlestick would look like a hammer and is a bearish indicator.

It was also the eighth day of a strong bull run.

Yesterday candlestick formation could be defined as a Evening Star.  The previous day was up and yesterday’s candle bottle was higher than the prior and the body was small.  Could indicate a reversal is ahead.  If today opens below the middle of yesterdays body, we could have a confirmed evening star candlestick pattern and be in a short term reversal. 

At this time, the longer term trend is still up.  Looking forward, you could argue that if we top here and go down, we may have a heads and shoulders formation forming.

Lets see what happens today.  The jobs report this morning will play a big role in overall ecomomic confidence.

Yesterday’s candlestick could be label as an inside day, which means a pause in the current trend.  The odds are that the current upward trend will continue.

Both of these options would indicate that this current upward trend is likely to continue. 

We have jobs report today and tomorrow and since jobs are the inhibitor of our economy, any new can quickly effect the markets.

The futures this morning point to a downturn on the opening bell.

The upside short term resistance on the S&P 500 is 1,345.  The downside support is 1,321.  The downside support is both the upper channel and the 50 day moving average.

Lets see what happens today.  Share your thoughts.

First technical challenge was the prior low set in March as 125.  Recent action took the index to the low but did not penetrate thus creating a double bottom.  This is a short term bullish indicator.

Secondly, the index broke out of a falling wedge to the upside with conviction serving as a short term bullish indicator.  The next resistance is 134.9 set in June.  It would be normal for this breakout to test the falling wedge upper channel.  If it resists and goes up again we could be off to the races.

Lastly, and the most important to the long term trend, the index price and 21 and 50 day moving averages resisted off the 200 day moving average and have now turned up without penetrating.  The is a strong bullish long term indicator.

Next step is to get the shortest term moving average (21 day) to cross the slower average (50 day) and we will then have all the moving averages in their rightful place and in an upward trend.

You can play the S&P500 with a 1:1 etf like SPY or a leverage 1:3 etf like SSO.  The 1:3 SSO will provide a 300% return on what the S&P500 does.

Please share your comments with us.

The ETF SPY (proxy for the S&P500) has a DOJI close yesterday.  This normally indicates a lack of direction or indecision.  It was also an “inside day” in that the highs and lows were within the range of highs and lows of yesterdays trading.  This would also indicate a reduction in stock market volatility (VIX).