The first three charts below represent the S&P 500 from a yearly, monthly and daily perspective. The fourth chart is an expanded view of the daily S&P 500 index.
These charts represent a negative scenario for this leading index. The yearly chart shows a double top with a large red candle during 2008 when the United States was in a large financial crisis. Since then, the market has been pumped up by artificial means through fed intervention. Four candles with higher lows took the market up to just below that high of 1471.77 for the 2008 red candle. Note the decreasing volume during the rise of the last four candles. That’s negative. The yearly double top also came after a significant bull market and long, slow, methodical rise. A move below 1258.86, which is the low for 2012, will confirm the possibility of a significant drop that could potentially breach the low of 666.79 which came during the year of 2009.
The second chart is the monthly SPX and represents three individual drives higher from the low in 2009. A fourth attempt to reach a high began in June of 2012 and ended during September of 2012 with a high of 1474.51. The uptrend was halted during November of 2012 with the last candle breaching the past low of October. This could be the possible start of a move back to equilibrium for the move from 666.79 to 1474.51. A 50% retracement is 1070.65. With current economic conditions deteriorating and the fiscal cliff decision ahead for the United States administration and Congress, this target could easily be reached. One monkey wrench in the scenario is the question of how long the Fed is going to continue to fuel the market by stimulating the economy.
The last two charts represent the SPX daily from a daily perspective. Currently, the index is trading near its 200 daily moving average but looks like it’s on its way to stronger support that sits near 1360. A move below that would set up the next support scenario around the June 4, 2012 low of 1266.74.
Will the scenario play out? I really don’t know, but the potential is now in play, and the trend is creating it’s first lower lows.