Sand Spring Advisors LLC
Short-Term Caution toward 923-924
August 10, 2002
by, Barclay T. Leib
A subscriber wrote into us recently having just read our August 7th Chart du Jour "Returning To Our Roadmap." This reader queried that if our bullish Nasdaq 100 interpretation into a November-February time window were to come to pass, how high did we see the S&P 500 rallying? After all, the S&P 500 has a pretty big zone of resistance near its 950-975 neckline region (depending upon how tight the neckline is drawn) -- assuming that is indeed a huge head and shoulders top that we see on the S&P weekly chart. And 950 is getting pretty close already.
We do not have a definitive answer to that question at this time, but suspect that the current corrective rally will somehow succeed in eating up much time -- at least in the month of August. Zooming into a 60-minute bar chart of the S&P 500 Index, we specifically see a short-term Fibonacci target approaching near 923-924. Such a level, if achieved this coming Monday or Tuesday, could represent the end of a first a-b-c rally period that will in turn form the A-wave of an even larger A-B-C corrective pattern. We took our colored pencil to the hourly chart below to show one possible path the S&P could soon deliver up.
Playing such anticipated short-term swings can of course be potentially treacherous. Do we really have to go all the way back down to 811 to form the next B-wave? No, not necessarily. That simply is one possibility that "looks" about right to the technical eye.
What we do know is that above 923-924, we find even more resistance near 933-937. This level represents a 38.2% retracement of the larger downswing in prices from January 2002 into July 2002. Above that, another potentional Fibonacci target area on the 60-minute chart is 954, and any rally to 967 would represent a 23.6% retracement of the entire bear market move between early 2000 and our recent lows. So undoubtedly the recent 4-day rally is going to start hitting some overhead "stickiness" shortly. Our best guess is that a sale on an overshoot of 923-924 up towards 933 will likely deliver some short-term rewards. We remain generally bullish this market on an intermediate term basis, but much work -- much backing and filling -- is now likely to take place first.
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