S&P 500 Index (SPX) – Are we there yet?

Following is the chart of S&P500 since 2007 in log scale. A five wave bearish trend that started in Oct-2007 ended in Mar-2009. This could be either wave 1 of wave A of a 5-3-5 structure or it could be wave A of the 5-3-5 structure. The highly overlapping nature of the bullish trend we are seeing since Mar-2009 makes me think that this could be wave B instead of wave 2. I have labelled this as wave I or “A” and wave 2 or “B”.

The complex nature of this bullish trend is hard to label. I have given a potential labelling as W-X-Y. That could be incorrect. As of last Thursday (Dec-24-2009), we have closed above the 50% retracement at 1,121. The closing price is at 1,126. As per the chart we have the following resistance in this area.

1. The 50% retracement at 1,121. For wave B this is an ideal target. If it is wave 2, ideal target would be 61.8% at 1,228.

2. In log scale if I extend the base channel (green color channel line) of the 2007-2008 declines, our bullish trend since Mar-2009 would meet this at around 1,140. This is only 14 points away from the closing price so far.

3. In the following 6 months chart, we have a potential to identify an ending triangle. The final wave E of this ending triangle would also be around 1,140.

Suppose if this breaks the upper trend line (black color) of this ending triangle at 1,140, I would expect the bullish trend to continue to meet the upper resistance line (red color) of the bullish trend we are seeing since Mar-2009. The potential for this to reach the 61.8% retracement should be considered.

On the other hand if it breaks the lower trend line of this ending triangle, which is also the support line (red color) of the bullish trend since Mar-2009, we could expect a major trend reversal for S&P 500. This support is around 1,110. So we are not too far.

In the following chart, compared to the 2007-2008 decline we are between 61.8% and 76.8% Fibonacci retracement. This is acceptable time to end the retracement, but could potentially go much higher.

The only major decline we saw in this bullish trend is in June-2009. When I do a Fibonacci price extension the bullish gain between Mar-June would be the same after July-2009 at 1,167. This is the 100% price extension. This could potentially be another resistance. The 50% and 38.2% of this extension did provide some resistance and support along the bullish trend we saw since July-2009.