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"S&P Approaches Important Inflection Point"

By Jeff Cooper
Street Insight Contributor
9/9/2004 6:57 AM EDT


"The S&P 500 is around a level where any reversal pattern has to be taken seriously.

We showed a 10-minute chart yesterday of the S&P on Tuesday, with the hourly breakout above 1120, a Boomerang move right back below 1120, and then the late bounce back to kiss 1120 once again.

The pullback appeared to trace out a very short-term Head and Shoulders topping pattern, with the head at Tuesday's midday high of 1124.10.

Such a short-term topping pattern, in and of itself, is not critical. However, coming at the important 1120/1123 level, it gains more potential significance. Coming after a virtually uninterrupted 60-point advance by the S&P, any reversal pattern, after such a stretch at a longstanding target/projection, bears close scrutiny.

After all, since the low day on Aug. 13, the S&P has given only one close below the low of a prior day. That occurred on Aug. 30.

Bullishly, the next day, the S&P traded lower but reversed back up sharply, leaving a 180 Buy Signal, which led the successful move by the S&P over its 200-day moving average, the tag of our 1118/1119 target, and then the kiss of our old friend 1123.


I promised yesterday to show the harmonics at 1123 and why any reversal from this level must be respected. Although the reversal pattern, traced out from 1123, is only short term in nature, it is important to remember that every turn starts out as something small, something innocent. It is important to remember that large losses almost always start out as small losses.

It is important for me to reiterate that I am not forecasting a top at 1123. There is just not enough evidence to come to that conclusion yet.

Moreover, the market has done nothing wrong. It is certainly entitled to a pullback. As I said in my last two commentaries, the market is certainly entitled to a pullback. Additionally, as I stated above, the grinding nature and the persistency of the move off 1060 S&P in giving only one close below a prior day's low and not offering a clear-cut pullback opportunity for players to get on board is classic bullish action.


However, nothing goes in a straight line. And with the "all clear" signal being flashed with a second "confirming," well-defined close by the S&P and the Dow Industrials above their respective 200-day moving averages Tuesday, now would, perversely and classically, be the typical spot for a shakeout to occur.

The harmonics at 1123 S&P are a compelling point on which such a pullback could occur. The opposite side of the coin is that continued firmness in the market in persisting to hug this level and the ability of the S&P to hold at/near its 200-day moving average now at 1113 and/or a convincing close by the S&P above 1123 this week or next would argue for higher prices sooner rather than later. In other words, the behavior at this make-or-break point will tell us whether the market will do or die here.

The Gann Square of Nine chart here demonstrates the importance of this 1123 inflection point in time and price. (To view a larger version of the chart, after clicking on the link above, mouse over the lower-right area of the chart until the icon with four arrows appears. Then click on that icon.):

The Aug. 13 low was opposition or 180 days from the Feb. 11 closing S&P high.
Note that the price of 1120 bisects the date of the low of Aug. 13, squaring the low day and, by definition, squaring the Feb. 11 closing high.
Note also that the same vector running through the price of 1123 bisects the number 183. From this year's S&P intraday high on March 5 to Tuesday's tag of 1123 was 183 calendar days. (Note: Chart refers to 83 days; that should say 183 days.)
In other words, the August low was opposition the Feb. 11 closing high. Now, we must carefully observe the behavior, as the S&P is opposition (180 degrees) this year's March 5 intraday high. "

(in www.realmoney.com)