What these 3 charts tell you about the S&P 500
It has been mentioned
on most (if not all) business news channels at least more than once. The S&P 500
is getting very close to its’ pre 9-11 highs. Oftentimes these types of news
channels will mention these resistance or support levels in passing and the
levels themselves are actually not very significant. How significant is the one
that the S&P is currently up against?
Looking at the 20 point three box reversal point and figure chart of the S&P
500, the resistance does not seem all that intense. There is only one prior top
at 1300 and that was May of 2001. The resistance becomes more obvious when
viewing the S&P 500 on a monthly bar chart. What was previously support up until
March of 2000 became resistance in May of 2001 and is the current resistance.
Support levels often become resistance levels and vice versa. In this case, it
is more of a support zone becoming a resistance zone.
Actually, this points out one of the weaknesses in Point and Figure charting.
Perhaps sometimes the levels are too defined.
Even the monthly bar chart does not show the resistance level as well as what is
the current appearance of the S&P 500 on a candlestick chart. As you can see,
these long upper lines (shadows) are very bearish and indicative of the bulls’
inability to close above the resistance area. There are a few spinning tops
mixed in this congestion area which indicates indecision.
However, what is most impressive and what is solidifying the resistance are
those long upper shadows. If you aren’t familiar with a candlestick chart here
are some basics. If the open is above the close then the candle will be white
with the bottom of the candle at the level of the open and the top at the level
of the close. If the open is below the close then the candle will be filled in
(red or black) and the bottom of the candle is at the level of the close and the
top is at the level of the open. The lines (or wicks, or shadows) at the top and
bottom of the candle represent the high and low for the day.
In our current situation, the bulls have not been able to maintain the highs of
the day and have immediately been pushed back as evident by these long upper
shadows. Again, this is bearish and reiterates this as a significant area of
resistance. Whether or not the S&P 500 can get above this area is a topic for
another discussion.
Sara Conway is a
registered representative at a well-known national firm. Her duties
involve managing money for affluent individuals on a discretionary basis.
Currently, she manages about $150 million using various tools of technical
analysis. Mrs. Conway is pursuing her Chartered Market Technician (CMT)
designation and is in the final leg of that pursuit. She uses the Point and
Figure Method as the basis for most of her investment and trading decisions, and
invests based on mostly intermediate and long-term trends. Mrs. Conway
graduated magna cum laude from East Carolina University with a BSBA in finance.