Wednesday, March 3, 2010

Saint Patrick and U.S. Equity Markets

Saint Paddy may have a surprise in store for the markets.

S&P 500

The chart below shows the S&P 500 since 2007. The following dates and levels are of significance:
High: Oct 11 2007 @ 1576.09
Low: March 09 2009 @ 672.88
Highest level since March low: January 19, 2010 @ 1150.45 ( 52.8 percent retracement)
Retracement Levels
886.04 0.236
1017.91 0.382
1124.49 0.500
1231.06 0.618
1382.80 0.786
1576.09 1.000

The decline (2007-2009) took 515 days.
515 * .618 = 318 days.
318 days from the March 09 2009 low occurred on January 21 2010.
The high for the S&P since the March 09 low was reached on January 19th 2010--a near perfect time harmonic.
Here is the interesting part--which will invite debate since the method used is controversial.
The chart below is a logarithmic chart. If the PHI divisions of .382, .50 and .618 are applied to the log chart the .618 retracement is very close to the January 19th high.
An argument can be made that the rally has satisfied both time and price retracement harmonics. A further argument can be made for the S&P to peak at or near March 17th since this would represent a .618 harmonic from the July 16th 2007 high @ 1555.90 which was slightly below the October high of 1576.09. This time from concurs with the high in the Russell 2000 (see below)
click chart to enlarge



Russell 2000 Small Cap Index

The chart below is of the Russell 2000 Small Cap Index.
The pivot dates are slightly different for RUT.
High: July 13, 2007 @ 856.48
Low: March 09, 2009 @ 342.59
Highest Level since March 09 low: March 02 2010 @ 650.26
Retracement Levels are:
463.87 0.236
538.90 0.382
599.54 0.500
660.17 0.618
746.51 0.786
856.48 1.000

The 2007-2009 decline took 605 days.
605 * .618 = 374 days
374 Days from the March 090 2009 low occurs on March 17, 2010.

While it can be argued that the S&P was fulfilled its time and price harmonics, it is possible that Russell 2000 has a little more fuel to burn off before harmonic balance points are attained.
If the Russell 2000 is at or near 660.17 near March 17th it would be prudent to look for signs of a reversal--especially if this is coincident with similar signs in the other markets.

click chart to enlarge

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