Just about every trader I know has been asking for an update on where the S&P 500 is headed. I have been reading my favorite traders blogs, and will combine my forecast with their opinions, which hopefully will give you a pretty clear view of where the markets are headed.

Marketclub’s S&P 500 Forecast

First let’s start with Adam Hewison’s new Video which covers Fibonacci Retracement levels, and Trade Triangles for the S&P 500:

Adam analyzes the Fibonnaci retracement levels where a reversal might start, which is right near where the highs were before the past 3 days worth of trading. He also examines possible levels of support based on the retracement levels.

Finally, he shows you the important levels at which new Trade Triangle signals have occurred, tell you exactly where to get in and out of this market. The video is 5 minutes long, and you can watch it here now.

S&P 500 Forecast from AfraidToTrade.com

The next analysis I took a look at is Corey Rosenbloom’s at AfradToTrade.com. Corey has taken a totally different approach to analyzing the S&P 500, in that he has reviewed each of the market pullbacks since July 2009. By averaging out the pullbacks since this period, which are about -6.4%, Corey has determined some very important price levels for support and given some forecasts if those price levels are broken.

Head on over to Corey’s blog and take a look at the levels he thinks are important in this market.

Ok, now time for my charts. Adam did a pretty decent job of covering indicators, so I will start with some Candlestick charts, and will cover an important indicator confluence at the end.

The first thing I want to point out is that the Evening Star Pattern I called out has definitely been accurate. It’s really not wise to ignore a pattern that is 72% accurate, and I went immediately into cash at the market close on the 1-15-2010. I did miss a bit of a head fake correction on the next trading day, but…

The next pattern I’m seeing is called the Three Inside Down Candlestick Pattern, and it looks like this:

The Bearish Three Inside Down pattern is simply a bearish harami pattern with confirmation. As you can see from the second highlighted box in the chart below, we have a Three Inside Down pattern with further confirmation, which is extremely bearish.

According to Thomas Bulkowski’s Encyclopedia of Candlestick Charts (Wiley Trading), the average move down from this pattern is about 5% in 10 days. At the close of the pattern, which was 1116.48, we should see prices move down to around 1060. Let’s compare that to the evening star pattern average move down of 8.7%. The evening star pattern formed with a close of 1136.03, and an -8.7% move would put the markets at
1037.2. The other important things to note are that 1) we’re closing at or near the bottom of each days trading range, and 2) there has been a MASSIVE increase in volume supporting the downward move. Vp

Ok, so the above establishes my mid term price targets, target 1 is at 1060, and target 2 is at 1037. Interestingly enough, the 1037 level corresponds nicely with the 23.6% Fibonacci Retracement level that you saw in Adams Video. This sort of confluence makes this an important inflection point. I tend to agree with Corey that a move below 1030 – 1035 could spell BIG trouble for this market, so I’m not willing to forecast out quite that far.

As if the bears needed anything else to be excited about, there another confluence in technical indicators that we haven’t seen during this rally. That is, we have a falling On Balance True Range with a negative cross over, along with a slow MACD (19,39) that is falling with a bearish cross over. As I said, this hasn’t happened at any time during this market rally. This market is incredibly bearish, so wait for any bounces then breakout your protective puts, long puts, and shorts!

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