November 21, 2016
By Mish Schneider
I spent a great deal of time trying to “read” this man. I invented stories about who he is, what he was thinking and why. It took me about ten minutes to see the obvious. The saxophone on his lap told the story. He was just biding his time waiting to play his Sax.
Written in a Daily dated 10-28-13 titled Every Man Is A Volume If You Know How To Read Him, I measured chart data in the S&P 500 and came up with a target price of $220. Back then, in the ETF analysis section I wrote:
“Pie in the sky analysis. If you look at the monthly chart, from the October 2007 peak high, to the March 2009 peak low and the neckline of what looks like a huge inverted head and shoulders bottom which broke out in April 2013, we could be looking at a move to around 220.”
Since then, many invented and real stories masked the obvious. The Sax on the market’s lap finally told the obvious story. After three years and 24 days of biding its time, today the SPY picked up its Saxophone and played the 220-high note!
Since the February 2016, SPY has not had a monthly close below 193.56. Seems obvious in hindsight, right? It also makes a case for buy and hold-a case that many, including myself, have poo-pooed.
Now that 3 years later we have reached “pie in the sky”, is there a new obvious “read” in the SPY chart?
First, I must quantify the word “obvious.” A head and shoulders formation is considered by technical analysts as one of the most reliable chart patterns. One literally sees a pattern that looks like a head with two shoulders.
An inverted head and shoulders typically means that an instrument that has been in a downtrend or in a correction down after an uptrend, is set to rise in price.
The neckline you see here is the same sort of neckline I saw in the SPY chart in October 2013.
Currently, a new but way smaller inverted head and shoulders is forming on the monthly SPY chart. The one in 2013 took 6 years to complete. The current one has been developing since the beginning of 2015. The neckline of this H&S in SPY broke out over $213.
Please note that this pattern can reverse and negate. A closing price under the shoulders would do it. In SPY, a move and monthly close under 198 would make the pattern null and void. However, assuming the pattern holds up, the measured move takes SPY to approximately $253-255.
If a 6-year pattern took 3 years to complete, best guesstimate is that this 2-year pattern will take about one year before we see that price level.
SPY no longer bides its time waiting to play. It has picked up the Saxophone and performed its first song. Now the bulls want an encore.
S&P 500 (SPY) 218 support 220 pivotal
Russell 2000 (IWM) If holds around 129.75 could see a move to the top of a channel around 134
Dow (DIA) 188-189 is the top of a channel on the monthly chart-write this down since if cannot close above there by the end of November could be time to run
Nasdaq (QQQ) 118 now pivotal support
KRE (Regional Banks) Up up and away.
SMH (Semiconductors) 70.50 pivotal support
IYT (Transportation) Important this month-a close above or below 159.40
IBB (Biotechnology) 280 support 290 pivotal and 300 big time resistance
XRT (Retail) 44.50 support. 46.00 substantial resistance
GLD (Gold Trust) 110 a reasonable target
GDX (Gold Miners) Unless this breaks 20.05 I like this better than gold
USO (US Oil Fund) 10.50 a good place to hold
TLT (iShares 20+ Year Treasuries) 120.15 point to hold
UUP (Dollar Bull) 26.25 resistance-25.80 support
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