As noted in my previous post on Nov 1st, there is an obvious head and shoulder topping pattern developing. This nested H&S pattern suggests a big crash lower by 40% is possible should it unfold as the chart depicts. However, I believe this bearish scenario is widely accepted and the H&S pattern I have illustrated is being followed by everyone. Hence I do not think this will happen. Instead, the markets appear poised to move higher.The plot just above illustrates the path I am expecting for the SP500 short term which is to reach price 1325 by the end of November. The Greece confidence vote took place on Friday keeping G-pap in office. I dont know if this will be viewed as bullish or bearish for risk, but I do know the price points on which one side I am bullish and the other I am bearish and the G-pap vote could propel prices.
Probably THE most important support and resistance lines are determined by old lows and old highs. To be clear, overhead resistance stems from old lows and support below stems from old highs. With this in mind, consider the chart above. Here I have drawn the horizontal lines defined by the key low made during Aug 2007 which kicked off the bear market, the first shot across the bow so to speak when JPY pairs went crazy (AUDJPY in particular). And the horizontal from the key lows of Jan 2008 and March 2008 which took place when the Fed was fooled into cutting rates following the Soc Gen selling error on a US holiday and the subsequent Bear Stearns crash. These two horizontals were emotional lows and continue to be meaningful as the chart clearly shows. The third horizontal in purple equals the high close made during Aug 31, 2011 which supported the market last week.
If the SPY closes this coming week above 126, the Jan - Mar 2008 key lows, then I think prices are headed much higher on a path to the Aug 2007 low at 137.25 which became the May 2011 top. First target along the way is 132.5 (1325 cash) due by end of November.
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