S&P 500 and ASX 200 – Update

Hi,

With markets now moving fast, I thought readers may be interested in some big picture observations and projections for the current downtrends in both these indices. If you’re like me it’s often useful to test your own interpretation of a chart against how other people are seeing it if nothing else.

To recap on recent posts, I’ve begun with a zoomed in look at the daily chart of the S&P 500 index. This paints a scenario that the S&P 500 has now begun the 5th swing of an impulsive downtrend. There is a tradeable probability that the recent high at “c” represents the end of the end of a corrective rally.

 The market has also formed into a bearish flag formation. A break of the current flag support also suggests the possibility that the major down swing down will continue. You can access a detailed desription of these set ups in my posts of 30 August and 2 September

S&P 500 Daily. Source: Bloomberg

The next chart shows a zoomed out weekly view with some Fibonacci projections that may come into play if the current move down continues.

The first Fib cluster level is at around 1064. This projects that the current swing down that begins at the recent high I have labelled as “4” will be 127% of the length of the 3/4 rally and 61.8% of the length of the whole move down from the “head” at 1370 to the recent low at “3”

The 2nd projection is at around 1020. This projects that the swing down from 4 will be 161.8% of the 3/4 rally and that the whole swing down from the “head” will be a 50% retracement of the rally from the GFC lows.

In my view these projections are best not used as predictions that the market will fall to these levels. It is much more effective simply to use them as trading tools adopting the attitude that ” what will be will be”.  In other words if price happens to get to one of these levels and forms a trough then there is a tradeable probability that, combined with the right strategy, the Fib cluster may represent a buying opportunity in the same way that the recent peak a “4” represented a selling opportunity.

The Fib projections outlined above would be made invalid by a rally above the recent peak at “4” 

S&P 500 Weekly. Source: Bloomberg

 The first zoomed in chart of the ASX 200 index also shows how this chart may also be in the 5th swing down of a major impulsive downtrend having just completed a possible corrective “abc” rally.

This chart has been in a broadening sideways pattern instead of a flag like the S&P 500. The Aussie market broke below the support of this broadening pattern this morning although you may prefer price to get a bit lower to confirm the break and reduce the possibility of a false start.

S&P/ASX 200 Daily. Source: Bloomberg

I’ve included some Fibonacci projections for the current downswing on the zoomed out view of the ASX 200

The first projection is at around 3600. This assumes that the swing down from 4 will be 127% of the rally from 3 to 4 and 61.8% of the whole swing down to 3.

The 2nd projection assumes that the next swing down will be the same size as the whole swing down to 3. This coincides with the March 2009 low.

S&P ASX 200 - Daily. Source: Bloomberg

Finally I’ve included Price Earnings multiple charts for both these indices. I find these can be really useful for comparing levels on one index with another and also for comparing historical valuations over time.

The charts below show each index as a multiple of last year’s earnings for all the companies in the index and also as a multiple of consensus earnings forecasts for the next 12 months.

For both indices, a move down to the first of the Fib clusters mentioned above would represent a move down to around 11.6 times historical earnings. This is still well above the GFC lows where the S&P 500 bottomed at around 10.1 and the ASX 200 at around 8.8

S&P 500 Index Price Earnings Multiples. Source: Bloomberg

S&P/ASX 200 Price Earnings Multiples. Source: Bloomberg

Cheers

Ric

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
This entry was posted in Market, Shares, Stocks, Trading. Bookmark the permalink.

2 Responses to S&P 500 and ASX 200 – Update

  1. daveold says:

    Ric, excellent stuff ! On your SPX analysis I have also projected potential downside level where W.5 = W.1 from the potential W.4 high at 1230. I agree all these projection levels are to provide our map based upon what the mkt is telling us at this point in time. I also have a 127% ext ret for the swing up from 1121 low to 1230.70 high providing a neat cluster of potential support at c.1085 to 1091 which includes a 78.6% ret level. Where do we stop ? I dunno 🙂 But creating maps helps us to know what to expect and be on alert for reversals at specific levels. I also use high probability reaction levels for lightening load

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