Tonight I was taking a look at the weekly chart of the S&P 500 and found something quite interesting happening with the Williams %R indicator. In the chart below, I have placed a vertical line at each point where the Weekly Williams %R has crossed below the -50 level. As you can clearly see, during an uptrend, a cross of this level usually means there is a normal correction occurring. The fascinating thing about this chart is that the williams %r has bounced almost perfectly off of this level 3 separate times over the past year.
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I went back and studied the entire history of the S&P 500 weekly charts, and this has NEVER happened before! However, I did take a look and found 1 matching circumstance where the Williams %R crossed above the -50 in the exact same month as this rally (April), and stayed there for exactly 1 year, before finally crossing this level again. The year was 2004, which by all recollection was a terribly boring year in which the market declined steadily until August, before the holiday rally erased all of the losses and created a virtual stalemate.
The conditions were very similar then. A strong rally out of the .com bubble bursting started in march 2003, and raced higher into 2004. The market then moved sideways with a series of doji before putting in a massive bearish engulfing candle and then moving lower until a late year rally returned the market to just about even.
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The the S&P now caught between a rock (the 50 period ema, and the Williams %R), and a hard place (the 200 period EMA), I suspect history just might repeat itself in 2010. I honestly believe either that the top is already in, or, we’ll have one last burst upwards and a 1 or 2 month sideways period before starting a slow decent into early fall.
Watch the Williams %R, and let’s see what happens.
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