Friday's 15.50 point decline, 1.9%, on the S&P 500 contract (CME.SP) came with a nasty close at 820 and a 'bearish' 5/20 moving-average cross, a big disappointment for the bulls after Thursday's bullish reversal. As we test the 800 level yet again, what gives?
With the contract back on the 800 number after a 20-point overnight decline, an options expiration week, a 16-week symmetrical triangle violation to the down-side, the 791.50 open gap from Nov. 24, 2008 still weighing on price, things look anything but bullish. Monday is so far looking like a big gap down open for a potential break-away gap out of the aforementioned 16-week symmetrical triangle (see below), but new and overly ambitious sellers need to be aware here as this market has a way of doing the unexpected.
Q: Over the course of its history, what is the performance of CME.SP after a 'bearish' 5/20 moving-average cross follows a 'bullish reversal' day?
A: According to the eight previous occurrences of this event, EventEdge indicates that CME.SP has shown a strong bullish edge that peaks 12 trading days after the event. Thus, the projected date for the peak of the bullish edge relative to the current event date (Friday, Feb. 13, 2009) is Wednesday, March 4, 2009. CME.SP rallies in 100% of the cases (8 of 8) by an average of 1.5% relative to the close on the event date. The overall return of the eight cases is 1.5%, which, based on the close of CME.SP on the event date (820.1), provides a target price of 832.40.
To view and modify the event parameters defining this study, click here to launch the EventEdge® tool.
Mr. Jay Pasch is a private futures and equities trader based in Minnesota. He may hold positions in the instruments mentioned in his trading ideas.
