SPX Technical Analysis

Head-and-shoulders Bottom (HSB) has Failed

A few days ago we bought 100% SPX related assets due to what appeared to be a perfect retest of NL at 1477.65. But NL failed to support the SPX and has moved lower. The failed HSB is now irrelevant and so we are forced to look else where for guidance.

We're left with only a couple of clues. There's a poorly defined uptrend line (S1) at around 1410, and we have seasonality. If the downside continues we should get a bounce off S1 which will give us a drawdown of 4.6%. Uncomfortable but something we may have to live with. A short discussion of seasonality follows.

Mid-December / Early January Seasonality

If one had bought the SPX on December 17th (or the next trading day) since 1942, and held for ten trading days they would have received, 80% winning trades with the SPX appreciating at a 47% annual rate which is five times the SPX's normal rate of appreciation. The last loss of over 1% was in 1980 which was also the largest loss since 1942. Recent results since 1990 and since 2000 have been similar. (Tested with ULTRA's PERI System).

Since 1942, the first three trading days of January have returned 64% winners with the SPX appreciating at a 53% annual rate (Tested with ULTRA's SEAS2 system).

Due to December / Early January seasonality we'll ride this downtrend out and revisit our sell criteria in early January 2008 at the latest.

NDX Technical Analysis

NDX Testing Support S2

The NDX appears to be testing a fairly well defined uptrending support line S2. If S2 fails we expect a drop to S1.

At this point we will not take on NDX risk.

RUT Technical Analysis

Possible Broadening Top Forming in the RUT (no change).

Broadening Top Formations are ominous. They represent a confused and speculative market. If there is more downside in the future of the SPX and NDX, the RUT will probably reach S1. Can the RUT then run back up to R1? Definitely yes. That, would be a scary looking chart.

At this point, we see no good reason to take on RUT risk.

XAU Technical Analysis

Head-and-Shoulders Top (HST) in the XAU

Yesterday, the XAU confirmed a HST with a drop below NL. At the same time the XAU closed very slightly below 160 which was supposed to be our buy criteria. Due to the HST, we did not buy upon that criteria. Readers that did buy should sell into today's close which appears to be at a small profit.

The XAU has bounced off the support created by the Jul07 top (S1). It appears the XAU will attempt a retest of the neckline NL at 165 before going lower.

The minimum drop that the XAU HST implies is to around 135 (OBJ). We have no plans to consider XAU related long positions until the XAU drops to OBJ or the HST fails.