The risk rally which started in October 4th 2011 has ended last week. The entire trend which took S&P500 from 1120 to 1420 took seven months. Reader may remember that I wrote on 27th September 2011 about this rally as there was excessive pessimism in the market. I must admit that this risk rally went up further then I expected. The duration of this risk rally was exactly 7 months, only 1 month more than my expectation. If I look back to a single event which caused the market to move up higher beyond expectation than it has to be the LTRO announced by ECB. I never expected ECB will ever go for Quantitative Easing.
PS:- I have plotted the expected candle formation for the month of May in seperate box. The trend line support for S&P500 is at around 1220 - 1250 levels.
The given chart is of S&P500 monthly chart. Last month S&P500 formed a Doji and this month follow up can form an evening star pattern. I think one can reasonably go short on S&P with stop loss above 1425 and target of 1220 -1250.
As also mentioned in my previous post 1220 – 1250 is going to be a very strong support zone for S&P500. Looking at the current macroeconomic scenario I don’t expect this level to be broken. But if this level is broken then we will witness severe correction in market.
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| S&P500 Monthly chart |
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