Monday, November 1, 2010

S&P500 November 2010 forecast

S&P500 Big Picture:
S&P500 Technical Analysis Chart: S&P500 is going to move violently after Fed announcement on QE2. The Wall Street is not going to get what they are looking for. Bernanke is not going to flood the market with huge sums of money. Quantitative easing will be a gradual process. The QE is a very risky move and could effect dollar value significantly, therefore Fed is not going to take a huge risk and go all the way. Probably they would start with 300-500 billion dollars and see what effects would have on economy or Fed may not give any dollar amount and keep the Wall Street in a dilemma.
If you are betting that Republican congress could do anything for economy there is a good chance that you are going to get disappointed. On historical bases gridlocks are bad for stock market, because nothing is going to be done, democrats and republicans are going to spend their time an energy to fight each others.

As I forecasted last week we witnessed selling pressure at 1194. If big institutions want to inflate the bubble more they have to keep the S&P500 above 1194. I'm going to stay in bear camp, I think the risk is to the down side. This is nothing more than asset bubble that is based on speculation on second round of quantitative easing (QE2).
As you see in the chart above rally has halted right beneath the upper side the orange channel. S&P500 has been moving in this channel since July 2010. As you see in the chart the recent rally is a clear "a,b,c" move which completes the sub-wave(2). As long as S&P500 stays in this channel bulls would have the upper hand. It would be very hard for bulls to break out of this channel before 5-10% pull back. Big institutions could send the market lower to trap bears and manufacture a new shortsqueeze. I think it's about time bears get active again. What you need to pay attention to would be 1150 and 1100 support levels. The last line of defence is 1075 if S&P500 tanks below 1075 it would be impossible for bulls to send the market higher in coming weeks. Due to huge rally a 5-10% pull back is absolutely normal, but you need to get worry if S&P500 breaks the lower side the up trend channel(see the chart in gray color). This channel started back in March 6th 2009. If S&P500 violates it; picture would get very ugly.

It is critical for market to stay above 1195 by November 30th and rally above 1220 by end of this year. If big institutions fail to take out these two levels it means they want to send the market lower.

R1: 1194
R2: 1200
R3: 1220

S1: 1165
S2: 1150
S3: 1130