The Chart du Jour

Failing at the Top of the Envelope: S&P

January 27, 2001

By, Barclay T. Leib


Chart courtesy of BigCharts.com

The S&P 500 is currently failing near the top of its Bollinger Band envelope. Although the market seemingly now expects a 50-basis point discount cut out of the Fed, disappointing earnings announcements are dominating the market action far more than anything the Fed does or does not do. 70 and 100 P/E ratios are slowly starting to head back to more normalized levels in almost an entropic fashion.

Within this environment, and given the overall look and feel of the current S&P price action, there is at least a risk that this market could be headed into a crash mode. While we have previously pointed to 1241 as a likely Fibonnaci support level on a few occasions, there are always numerous levels from which Fibonacci bands "fit." Below we have stretched them on the cash S&P weekly chart all the way down to 1071 -- a level that would certainly shake up the current market complacency that reigns.


Chart constructed with Advanced GET End-of-Day

Do we really think the market is headed to such a level? Longer term, maybe yes. Short term, basis the Fibonacci rhythm of the S&P daily chart (not shown), 1241 still seems a more reasonable target, but if this market ever gets some wind behind it to the downside, please don't try to bottom pick! Market crashes are always low probability events, but if the Fed uses up its rate cut bullets prematurely with little success, the market could smell blood. A cascade-type price action is always possible.

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