Almost every technical analyst out there has identified the recent symmetrical triangle that the S&P500 has formed over the past few weeks. Triangles are consolidation patterns. This one is small enough to be called a “pennant” ( although pennants are basically shorter termed triangles that typically occur during a trending market—and this market is not yet trending). Whatever you want to call it, the triangle recently broke to the downside, thus it’s likely that we will see some near termed negative follow-through. As the pattern is a small one, the downside may only appeal to shorter termed “swing traders”. The S&P is finding resistance around the 200 day MA (red line) near 1230 and support around the 50 day Ma (blue line) currently near 1200. Click on the chart to see more detail. The market has shown amazing resilience, as noted in last week’s post, to bounce off of the former top (now support) of the August-October consolidation pattern. This support level lies just under 1220 (as I write this the S&P sits pretty much right at support at 1216). As a reminder, a one or two day spike below support will not imply an ensuing meltdown—look for a break below current levels that lasts at least 3 days before drawing any bearish conclusions. Given the recent resilience of the market and the seasonal tendency for market strength at this time of the year, I remain long on the market with an upside target into the low 1300’s for the S&P 500 by early winter.
Gold & Oil
Over the past few blogs, I have made a couple of observations regarding the patterns for both gold and oil – both the commodities and their respective equities. Lets cover gold first.
My specific comments over the past 2 months were to consider buying gold when it was near $1600 and sell at $1800. I recently suggested that gold had reached the top of a trend channel at $1800 – and mentioned I sold my equities in that sector. My view was, and remains, that gold is in an uptrend and can be bought back again at or slightly below $1700/oz in whichever way you prefer (bullion or equities).
As for oil, I noted the price breakout in my late October post for WTI crude. My target was into the low $100’s. The targets I noted in that post are still on the chart below, with a revised upper-end target newly added. From what I can see now, there is a potential for oil to get into the $107 area over the coming months. Energy stocks should follow suit, especially now that some of the pressure from the Keystone pipeline delay is off. However, oil does tend to be a market leader, and we will need to see markets get through next week’s U.S. deficit cutting discussions before any upside resumes.