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

S&P500: Is there life after QE2?

Dear Investors,

It has been a while since the last analysis of the S&P 500. The last analysis was from December 2010 but honestly nothing serious has changed since then.

In December of 2010 a big “cup and handle” pattern was triggered. Interestingly the cup of the “cup and handle” was another cup and handle (not shown).I recommended to buy the break out of the smaller cup and handle. The S&P 500 was at 1240 back then. We have not reached that level since despite the political turmoil and the catastrophe in Japan. But where are we now? Is there a life after QE2 or should we follow Goldman Sachs’ recommendations to its clients to sell into the current rallye?

Well, let’s take a look at the charts! Goldman Sachs is right when they say that the overbought situation in the monthly chart is still worrisome (pink arrows).In addition do we have a hanging man in the monthly chart (blue arrow) which can be a bearish sign. But overall the monthly overbought situation can be useless if there is enough liquidity around to ignore it. So let’s move on to the weekly charts.
The weekly chart shows prices above the mid Bollinger Band which is bullish. There is a negative divergence in the Bull Bear Histogram and the MACD lags a buy signal. So the weekly chart is not really helpful either. It could go either way.But… the daily chart gives hope to the bulls. The downward trendline was broken and we had the minimal correction to the 38% retracement. The so called hammer from Thursday was confirmed by a white candle. In addition the indicators support a nice upmove!!!Conclusion:

Overall I think that the big Cup and Handle is still valid which should bring higher prices towards the end of the year with acceleration soon. On a short term basis we have a nice opportunity for rising prices. We have to watch the 1340 area closely. If we can break above it an inverse shoulder-head-shoulder (SHS) pattern would unfold with a target of 1430. Then we would have to analyze again. The question will be how the overbought situation in the weekly and monthly chart will overshadow the daily chart. Time will tell. If we don’t go up impulsively in a couple of days the bullish outlook was negated and “Sell in May and go away might be in place!” But given the daily chart the bulls have a good chance to tease the bears once 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.

Have a great April

Marcus Muehlbauer MD PhD