By Stephen Cox, CMT
The S&P 500 index, which has fallen sharply since early September's high near 1470, is, as of this writing, bearing down on a potential bottom at 1340.00. I calculate that a minimum bounce from 1340.00 will carry up to 1380.00 which will be an interim top.
I draw this conclusion from a chart phenomenon that I refer to as "stacking," that is, the uncanny relation between technical patterns that coexist at a single moment of time, whether the pattern is formed by the market, or drawn by the technician.
In this case, as the chart above shows, stacking is evident by the dashed yellow "plumb line" that falls from September's bull market high, and intersects each of the two orange uptrend channel trend lines. Accordingly, I infer that the right angle bend of the yellow dashed line at the lower orange channel is implying horizontal support at 1340.00.
Every technical analysis necessarily has an imponderable and in this case it's the orange trend channel, which I believe is my best proxy for the June-September bull market. The extreme resistance of upper channel in mid-October touched obviously strong resistance after mid-October when the S&P 500's fell drastically. And in any case the mid-October high overlapped the September bull run and so I believe that the depicted uptrend is a fair depiction of this year's bull run.
But in this case, what I call "stacking" is vertically from the top to the bottom, three elements: first the September high, then the higher trend channel, then the lower channel line. Stacking, as I see it in this case, is if the important September high imparted its technical importance to two lower channel trendlines.
In this case, however, the lower channel trendline below is the lowest chart fixture directly below the September high and so it becomes support at 1340.00.
The message in the callout box on the accompanying chart says it all: chart points immediately below a major high, as in this case, should be given prior attention. Conversely, chart points immediately above an important lower deserve attention.
I infer from more orthodox chart methods that a bounce above 1380.00 will carry up to 1420.00.