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Some S&P Voodoo

Posted on February 19, 2009 by Adam

Traders get the voodoo treatment

I’m not superstitious - I promise. But I can’t help but notice something strange that’s going on with the S&P 500. I have noticed something in the charts that has me very interested.

Looking at a point and figure chart of the S&P, we can see that it went on a sell signal last week, which was quickly followed by a break of 800 and a bear confirmed signal on the NYSE bullish percent indicator. It all appears to be a nice and clean technical setup for lower prices.

How much lower do they go? My best guess would be the technical level of 740, which was made in November when the stock market reversed higher from making new lows.

Then I looked a the point and figure chart of the S&P. All point and figure charts come with price objectives tacked on, which more often than not, are fulfilled. We’ll tackle all this stuff next week in the live webinar tutorial on point and figure charting. If you haven’t signed up yet, it’s free, and there is plenty of space still available. It will last an hour and I will walk everyone through the basics of trading with point and figure charts, followed by a Q&A session. Click here to sign up now.

Anyway, I was taken aback when I looked at the bearish price objective, which was set by the most recent sell signal. Can you guess where it points? S&P 740 - right down to the November lows.

The point and figure charts predicts we go to 740 - the exact lows printed in November, right where I would have predicted. Spooky.

Kind of spooky, right?

Now how do we make money from this, because when this many stars align I usually get pretty certain that what we predict will, in fact, happen.

It won’t be a straight shot down to 740 - it never works that way. Instead, if you have a medium term time horizon, wait for a rally and get short or buy some puts on the DIA or the SPY. Cover when we print 740 exactly. Easy trade.

Happy trading