US Index

On 22^nd February 2017 when SPX was trading at 2354, I wrote, “SPX has negated the bearish doji in yearly chart which indicates very strong bullish momentum in the index Target for SPX will be ultimately at 3200 and unless SPX breaks below the support of the channel (yellow channel) this target should be achievable.”

I followed up on 21^st December 2017, “The strong bullish momentum continued throughout the year and SPX is up by almost 14% since then. If we look at the current weekly chart for SPX500, the index has reached to a crucial resistance level of 2700. The index should face multiple resistance at these levels and it seems that a correction to 2400 – 2500 looks very likely. However, the long-term target for SPX stays at 3200 -3300 and index should resume its upward march after the brief pause which will be a good long-term buying opportunity.” 

What happened subsequently?

SPX moved up 7% in January 2018 and made a high of 2870 before it fell 20% to make a low of 2319 in December 2018. The up move of 7% in a single month was completely unexpected as I saw resistance on charts at 2700 levels. This phenomena where an asset moves above its resistance for a short period is known as throw over and I clearly did not envisage a throw over in the index.

The subsequent correction in S&P500 was completely on expected lines. I was targeting a low of 2400 while S&P bottomed out at 2319. Just as I thought it was a very good long term buying opportunity and S&P500 today has hit my target of 3300. In three years from February 2017 to January 2020, S&P has given 40% returns

What happens next?

I have been observing this channel since the channel break out happened in December 2013. S&P has reached the channel target of 3300. There are two scenarios which can pan out from here. The most likely course for S&P should be a time and at price correction from these levels.

But I think that won’t happen. I think S&P will have a throw over of the main channel and the index may move up to 3600 to even 4000 levels. This move should pan out at a lightning speed. The long term top in S&P should form at those levels after which a serious correction look imminent.

What will I do?

I will continue to monitor markets and if S&P continues to rise rapidly I will start reducing my equity exposure between 3500 to 3800 levels.

I think global equity markets will also behave in a similar fashion and we can use S&P levels to time our long term investments in stocks.