T2W Trading Community

Chart Notations:

• The Monthly chart of the S&P500 above addresses the Intermediate-to-Long-Term time horizon
• The design of the long-term trend in the S&P500 is very different from the DOW. Note that it is trailing way behind, and is still within the confines of "corrective behavior."
• We have applied the .786 Fib Retracement here as the next Resistance point, and took that and translated it over to the DOW to arrive at our 12,200 resistance point there, just using some elementary math.
• In the S&P500, the .786 Fib retracement is the final frontier of resistance. A sustained trade above that point would put a 100+% retracement into play. We shall deal with that only if the market is able to exceed 1385. In the meantime:

Note that in over 4 years of trading since the 2002 low point, the upward trend in the S&P500 (which is corrective of the prior decline) has had no pullback of greater than 9% magnitude. It has been a great and very consistent environment for US investors, as returns were positive almost all the way in those 4 years. We are now reaching a stage in long-term market cyclicality that the market is ripe for a good dose of profit taking. As we near this critical resistance point, what is likely to be the largest and fastest decline since the 2002 low point is imminent (relative to this time frame discussed). If the largest decline since the 2002 had a magnitude of 8-9%, then that means that if the market reacts to the .786 Fib retracement at this important cyclical juncture, the decline is likely to exceed 9% in magnitude. It is also likely to be a fast one. We shall maintain this posture for now, as long as the S&P500 is trading below the 1385 mark. The weeks ahead are going to be very pivotal in the markets. Let's tread carefully, as we always do, as the markets continues its progress through time.