Investor Alert

London Markets Open in:

Market Sentiment (Stocks on NYSE, NASDAQ, AMEX)

Nov. 8, 2016, 3:46 a.m. EST

How bearish is the failure of this too-obvious-to-be-true" S&P chart pattern?

Watchlist Relevance

Want to see how this story relates to your watchlist?

Just add items to create a watchlist now:

  • X
    S&P 500 Index (SPX)

or Cancel Already have a watchlist? Log In

About Simon Maierhofer

Simon Maierhofer is the founder of iSPYETF and publisher of the Profit Radar Report. Investor’s Business Daily once wrote that: “Simon says and the market is playing along.” Simon analyzes technicals, proprietary supply and demand data, sentiment and seasonality to spot low-risk or high-probability ETF setups. He has been featured on: CNBC, FOX News, the Wall Street Journal, and many other financial-news outlets.

/conga/trading-deck/bios/maierhofer_simon.html 345622
The trading deck is powered by

By Simon Maierhofer

Getty Images

"If it's too obvious, it's obviously wrong," was one of Joe Granville's popular aphorisms. Here is a chart that falls into the “too obvious to be true” or “too popular for its own good” category.

Too obvious to be true

Since late 2015, the S&P 500 /zigman2/quotes/210599714/realtime SPX -1.18%  has touched the 2,120+/- level no less than 10 times. Initially 2,120 served as resistance (red arrows), lately it served as support (green arrows).

In fact, since September, the S&P bounced from 2,120 six times. Even a casual chart observer could see that 2,120 is important support. When any particular level or indicator becomes to obvious and popular, it's time to focus on something else.

Horizontal volume analysis

The Oct. 16 Profit Radar Report looked at “horizontal volume” analysis and published this chart and commentary:

" Our horizontal S&P 500 futures volume indicator (green horizontal bars show volume by price, not time) shows support around 2,085 (about 2,090 for the S&P 500). There is an open chart gap at cash S&P 2,098.70. A break below S&P 2,014 should see a closure of the chart gap next."

The open chart gap at 2,098.70 (dashed purple line, first chart) was closed on Tuesday and the S&P 500 futures are near “volume support” around 2,085. An increased amount of S&P 500 futures previously exchanged hands around 2,085, which makes this a (support) level worth watching.

Flushing out weak hands

The Oct. 23 Profit Radar Report warned that: “There needs to be a drop deep enough to flush out weak hands to subsequently set the stage for a dynamic rally.”

Since support at 2,120 had become so obvious, there were no doubt tons of stop-losses placed just below 2,120. A drop below 2,120 triggered those sell orders, causing further declines. This is part of the flushing-out process.

On Friday, the key question was: How deep (or low) is deep enough?

Monday’s early morning surge may have provided the answer already. Now the question is: How high can this rally go?

The sentiment extremes seen at Friday’s low where somewhat similar to those seen at the February and June lows, which sparked 10%+ rallies. The initial kickoff from the February and June rallies ( discussed here ) strongly suggested further gains. We’ll be watching if the next days bring the same “escape velocity.”

Based on all prior elections since 1950, stocks rally into Election Day, digest gains, and continue to rally thereafter. Based on this historic pattern, the odds for a fourth-quarter rally are strong.

The latest S&P 500 forecast discusses what to expect from stocks over the coming week.

-53.96 -1.18%
Volume: 3.04B
Dec. 1, 2021 5:04p

Get news alerts on S&P 500 Index — or create your own.
Page 1
This Story has 0 Comments
Be the first to comment
More News In
Trading Deck

Story Conversation

Commenting FAQs »

Like & Follow The Trading Deck

/conga/commentary/columnist-competition/looking.html 234011

Partner Center

Link to MarketWatch's Slice.