Analysis was created by Marcus Muehlbauer MD PhD aka “Ben Bernanke at www.tradesignalonline.com”

S&P500: Unbelievable!

Dear Investors,

Today I want to give you the opportunity to read my analysis for the S&P500. I am taking a small risk here because I am also going to include a review for 2010. 2010 was an exciting year. After a “monster rally” in 2009 the flash crash happened and initially every investor was pretty skittish about the rest of the year. Our clients were short during the flash crash and started accumulating long positions in August again leaving the benchmark far behind.

To make a long story short: We broke the 62% Retracement of the major downmove (from October 2007-March 2009) this week. Moreover we probably triggered a big “cup and handle” pattern. And that’s a big deal! Believe me. Many investors still do not realize the impact and some even argue that the rally is going to be over soon because the retail investors just started coming back to invest in the stock market again. This might be true but technical signals are signals and have to be followed until proven otherwise. And do not forget that the retail investor of 2010 is more sophisticated than he was in 2000. In the first weekly chart you can see a “cup and handle pattern” and that we broke the above mentioned resistance (pink arrow).We came awefully close to the 62% retracement in May 2010 already. Just a couple of points shy the resistance the “sell-off” started, which was not so surprising after the rally of the century. Then an inverted "shoulder head shoulder (SHS)" pattern formed over the next 4 months. Anti-cyclic investors as me started to invest during August. In September the S&P500 broke the neck of the SHS pattern. I posted that the next target would be 1220 (S&P 500: 1130) in the official blog “Bernanke’s Proprietary Trading”on 9/18/10. It was clear that we would correct for a little bit after reaching the target but what pattern unfolded since then? Let’s zoom into the weekly chart again.Just below the resistance we started building a bull flag. Moreover the weekly close was never below the 200-week moving average. This was a very bullish sign already and after the indicators reached a level that enabled another up-move (set of specific indicators not shown in my charts) we finally triggered a major buy signal this week. A closer look shows another “cup and handle” pattern now. Of course this has to be confirmed with the next 2 weekly candles. Looking at the daily chart (not shown) the next target projection should be ~ 1280. Later in 2011 the targets in the S&P500 should be ~1360 and even ~1420-30 could be easily possible.

Conclusion:

The S&P500 triggered a major buy signal. The handle of the bigger “cup and handle” pattern was formed by another “cup and handle” pattern. That should trigger a big buy signal. If I had to make a decision to invest money right now I would buy a first position next week because there is a good chance that the prices won’t come back down again. Investors can then wait for a pullback and buy another position between 1200 and 1220. The daily chart is pretty overbought and therefore a pullback is likely. In the current situation I would place the first stop for half of the position around 1150 but it all depends on the chart-pattern and is for unleveraged positions only. Contact me about what to do once the S&P falls below 1220 again.

Disclaimer: Past performance is no indication of future return. The content of this analysis is without warranty of any kind. Trading can result in substantial financial losses. Ask your financial advisor.