Technical Analysis on S&P500

July 4, 2013
M Ashok Raja
The S&P 500 has broken above the pre-panic high of 1576.09 (posted in October 2007) on April 10,
2013, after five-and-half years and continuously posted a fresh all-time high in a series. The recent
one posted one 1687.18 levels on May 22, 2013.
OSCILLATORS
Notation
BB1: Bollinger Bands (21, 2.00)
BB2: Bollinger Bands (34, 2.25)
BB3: Bollinger Bands (55, 2.50)
L1, L2, L3 for lower, M1, M2, M3 for middle and U1, U2, U3 for upper bands of BB1, BB2 and BB3
respectively.
Stoch1: Stochastic (13,8,8)
Stoch2: Stochastic (21,13,13)
Stoch3: Stochastic (34,21,21)
The daily chart below shows the set of Bollinger Bands BB1, BB2 and BB3 along with the Stochastic
oscillators- Stoch1, stoch2 and stoch3 in the lower panels in that order. U3 is flat and L1 has crossed
below the L2 with the prices are hugging these two bands. Adding to this, the U1 and U2 are curling
upwards. This set up would limit the upside potential for short run and would likely to extend its
current weakness towards 1550 level in the near-term. In Stoch1, the %K is retreating lower from the
key 50-reading and is all set to cross below %D, whereas, %K is comfortably positioned below %D in
Stoch2 & 3. This setup further strengthens the expected weakness ahead, towards the
aforementioned levels.

In the weekly chart below, the L3 and L2 are curling upwards with flattening U3 and decreasing
momentum in U2. Hence, a medium-term (2-3 months) top is already put in place near the all high of
1687.13 (posted on May 22, 2013) or lulling to place a medium-term top in the coming few weeks.
The %K is below the %D in all stoch1, 2 and 3, the extrapolation of stoch1 and stoch2 suggests for
more room on the downside, which can drag the Index towards 1500 levels in the coming 2-3 months.

In the Monthly chart below, the L3 is precariously curling upwards and U1 has crossed above the U2
(though slightly) nearly after six years, and the prices are close proximity with these two bands.
Hence, a major top might have put in place near the all high of 1687.13 (posted on May 22, 2013) or
would likely to place a significant top in the coming 3-5 months, and currently, the Index is extremely
overbought.
In all stoch1, 2 and 3, the %K is above the %D in the deep overbought region and all set to cross
below %D. This set up also suggests an extremely overbought condition in the market and a major
top is likely to place very soon (if not already placed). Note that the (almost) similar set up (in
Bollinger Bands and Stochastics) has been observed in mid-2007 (highlighted in thick red circles in
Bollinger Bands and light grey rectangles in Stochastics), months before the panic crash. So, what to
expect in the months ahead?

WAVE ANALYSIS
...when you have eliminated all which is impossible,
then whatever remains, however improbable, must be the truth.
- Sherlock Holmes

Degree Notation

[i]- Super Cycle

(1)- Cycle
(1)- Primary

[i]- Intermediate
(1)- Minor
(1)- Minute
[i]- Minuette

Scenario from 2009 lows to present

The 2008s panic crash has posted a low of 666.79 levels in early March 2009. Despite of decent rally
from this low, the price action until mid-July 2009 shall be considered as a part of the panic downfall
from the perspective of Neowave Analysis (Neutral Triangle, shown in the chart below). Hence, the
mid-July 2009 low of 875.32 levels has ended an important wave pattern, which is labeled as Primary
(C)-wave.
Thereafter, the Index has entered into the multi-year bull trend with two significant corrections during
Apr-Jul 2010 and May-Oct 2011, losing nearly 16% and 22% respectively. However, the Index

recouped these losses and resumed its bull run, ultimately posting a fresh all-time high in the first half
of April 2013, soaring past its 2007s high of 1576.09. From thereon, the Index has posted a series of
fresh all-time highs, the recent one being registered on May 22, 2013 at 1687.18 levels.

The Index action since mid-July 2009 low of 875.32 is considered a Primary (D)-wave, which is still in
force. Well unveil the internal structure of this wave based on the following observations. Below
spread sheet is a working on the comparison of price-time relationships of various legs. Left side
columns are working on extreme price level and the right one for termination points on the logarithmic
scale (for Index values only). Please refer the below spread sheet for the following discussion
(ingnore the gray colors cells). Here, we discussed the step-by-step Interpretations as when the wave
evolves from the aforementioned lows.
For the first three legs ([a], [b] and [c])
1. The structure of [a]-wave is corrective and [b]-wave has retraced less than 61.8% of [a]-wave.
[b]-wave ~ 53% of [a]-wave
Rules out the possibilities of Flat and Zigzag categories completely, and Standard Contracting
Triangle.
2. The [b]-wave has consumed less time than that of [a]-wave.
Further solidifies the above interpretation
3. Price-wise- [c]-wave is less than [a]-wave
Rules out the possibilities of any types of Expanding AND Neutral Triangles.

For the legs up to [d]-wave

4. Along with the consideration of point-3 above, [d]-wave is related to [a]-wave by about 67%,
Price-wise.
Increases the odds in favor of Reverse Alternation Contracting, with rest of the possibilities
remain open.
For the legs up to [e]-wave
5. The price action after [d]-wave has encompassed the lengths of [b]-wave in mid-Jan 2012 and
[e]-wave in March 2012.
This led to eventually drop out the possibility of Reverse Alternation Contracting Triangle, which
was the best choice up to the point-4 above.
6. The price drop in May 2012 with significant rate fall suggests the completion of wave at the high
May 2012 of 1415.32 levels.
Hence labeled as one more corrective leg, i.e. [e]-wave.
7. Adding up to this point, the price moves (legs) are not properly channeled (parallel) and there is
significant price variation between certain legs.
Non-standard corrections AND Symmetrical are kept as the least preferred choices, emulating
the best choice as Diametric Pattern
8. The presence of similarity in Time (almost) and complexity of the waves further solidifies the
Diametric pattern.
9. Though the price relationships in the Diametric are not stringent, it is observed that the
characteristics of waves preceding the d-wave in that order are related to the waves that follow it.
Here, (from extremities or terminations) [a]>[b], [b]<[c] and [c]>[d] and hence it should hold the
relationship [e]>[d], [f]<[e] and [g]>[f], which is true in our assumed Diametric.
10. Further to this, classically, [g]-wave related to [a]-wave by 100%. But our experience shows it is
most likely related by nearly 61.8%.

Hence, the [g]-wave should terminate near 1948 level, classically, and most likely near 1716
levels. Note that the [g]-wave (attained high of 1687.18 level on May 22, 2013, which is ~57% of
[a]-wave) has almost attained our mostly likely target, but not yet confirmed of its termination.
11. Time-wise: We observed that the centre of the d-wave in time scale divides the whole Diametric
pattern (from the extremities of prices) into two equal halves (allow 10% leeway), which gives the
information of the time of termination (or time of attainment of price extremity) of the whole
pattern, which is indeed the most valuable information.
The time take from the beginning of pattern (from the mid-July 2009 low of 875.32) to centre of dwave (to mid-June 2011) is 100 weeks.
Adding this TIME (100 weeks) to the centre of d-wave gives the TIME target to complete the
pattern (or achieve the price extremity) as mid-May 2013. Note that the Index has posted an alltime high on May 22, 2013)
If we allow 10% leeway, it gives the corresponding TIME target range from early March to late
July 2013.
Price-wise*: The Index is likely to terminate near 1683 levels (+/- 55 points)
Hence, the 4+ year bull cycle from 2009 lows might have terminated near the all-time 1687.18 on
May 22, 2013 OR likely to terminate near 1710+ level by late July 2013.
[f]-wave
12. The Intermediate [f]-wave formed as an Irregular Contracting Triangle.
The thrust out of this Triangle can range from 125% to 161.8% of b-wave (largest leg of the
triangle) and for Limiting variety, the thrust usually terminate near the apex point (time-wise) of
the converging trend lines encasing the Triangle. Hence, the Index should achieve the target of
1678 to 1770 level by mid-April 2013.
13. But the Index failed to achieve the aforementioned target levels within the time-frame required for
the Limiting Triangles. Hence, we proceed further, assuming the Non-Limiting case.
14. As the Triangle was not preceded by Impulse wave (as discussed in the MEW), we consider the
corrective leg preceding the Triangle, i.e. Intermediate [e]-wave for measuring the post triangular
price targets.
The 61.8% and 100% of [e]-wave, when measured from the termination point of the Triangle
gives the targets of 1662 and 1850 levels (log-scale). (The former target has already been
achieved).
[g]-wave and its structure
Scenario from December 2012 low of 1398.11 to present
15. After evaluating the subtleties of the characteristics of the notable moves after Dec12 low, the
Diametric seems to be the preferred structure of the [g]-wave.
16. Refer to point-9 above; the characteristics of waves preceding the d-wave in that order are
related to the waves that follow it. Here, (from extremities or terminations) (a)>(b), (b)<(c) and
(c)>(d) and hence it should hold the relationship (e)>(d), (f)<(e) and (g)>[f).
As the termination of (f)-wave is not yet confirmed, for now we can state that the first of the
required conditions [(e)>(d)] holds true. To hold the remaining two conditions, (f)-wave should not
breach the level of 1536.03 (or 1515) and inch higher at least towards 1659 level in the nearterm.

17. Time-wise: the d-wave (time-wise) divides the whole Diametric pattern (from the extremities of
prices) into two (nearly) equal halves.
st
The time take from the beginning of pattern (from the 31 Dec12 low of 1398.11) to centre of dth
th
wave (to 15 /16 Apr13) is 105 calendar days.
Adding this TIME (105 calendar days) to the centre of d-wave gives the TIME target to complete
the pattern (or achieve the price extremity) as end of July 2013.
Allowing 10% leeway, it gives the corresponding TIME target range from second half of the July
to first week of August 2013).
th
18. If we assume, the termination of (f)-wave near the 24 June low of 1560.33 level and measuring
the 61.8% and 100% of (a)-wave for (g)-wave gives the price targets of 1635+ and 1687/1688
levels. These target levels may alter, depending on the termination of (f)-wave.
The summary of the above interpretations are shown in the below sheet
Summary Table
Price Target
Point-10
1716
Point-14
1662
Point-16
1659+
Point-18
1635

1948
1850

Point-11
Point-17

Time-Target
3/1/2013
7/17/2013

7/31/2013
8/7/2013

1688

CONCLUSION1
The Index is likely to conclude its 4+ years of bull cycle near 1700 levels by the end of this
month or early next month (August 2013) and begin its bear cycle of same degree towards
900 levels or even lower.

Scenario from 2000 highs to present

The Index has recorded a high (the then all-time high) of 1552.87 in March 2000 and entered into
long-term bear market, grinding sideways in the broad between 650 and 1700 levels. From the wave
perspective, the long Bull Run from 1982 lows has ended near the September 2000 high of 1530.09
levels (but not at the the-then all-time high).
The following table shows the labeling of each wave from the September 2000 highs with the high/low
attained by each wave during its formation
Wave
a
b
c
d

Start Point
9/1/2000 1530.09
3/14/2003
788.90
12/28/2007 1498.85
7/17/2009
875.32

H/L attained
10/11/2002
768.63
10/12/2007 1576.09
3/6/2009
666.79
5/22/2013 1687.18

termination
3/14/2003
788.90
12/28/2007 1498.85
7/17/2009
875.32
5/22/2013 1687.18

Below tables shows the Price and Time covered by each of the above wave. The price covered by
extremities of each leg and its terminations are shown in Normal and Logarithmic scales.
Scale->

Normal Scale
Extremities

Wave Lengths
a
b
c
d*

Logarithmic Scale

Termination

Extremities

Termination

Time(wks)

Price

Rate1

Price

Rate2

Price

Rate3

Price

Rate4

132
250
81
201

761.46
787.19
832.06
811.86

5.77
3.15
10.27
4.04

741.19
709.95
623.53
811.86

5.62
2.84
7.70
4.04

0.6885
0.6921
0.8100
0.6562

0.0052
0.0028
0.0100
0.0033

0.6624
0.6418
0.5379
0.6562

0.0050
0.0026
0.0066
0.0033

* the d-wave not yet confirmed

19. The structures of waves (A), (B), (C) and (D) are corrective in nature.
The three or more consecutive corrective waves of the same degree falls under the categories of
Triangles or higher legged corrective pattern such as Diametric or Symmetrical.
(Rules out the categories of Flats, Zigzags and any Non-standard corrections)
20. For the Contracting or Expanding Triangles, wave-(A) should be the most violent leg when
compared with the other legs.
From the Rate fall columns in the second table above, wave-(C) is the most violent leg
(highlighted in Red color) followed by wave-(A).
Hence, we rule out the possibilities of any variation of Contracting and Expanding Triangles. From
the latter, we can say that S&P 500 will not break the March 2009 low of 666.79 levels for next
several years (or decades).
21. The left over choices are 1) Neutral Triangle, 2) Diametric and 3) Symmetrical
22. Here, for now, we keep the Symmetrical as the least preferred choice and proceeding further
analysis with the Neutral Triangle and Diametric as equally probable.
23. In Neutral Triangles, the wave-e tends towards the equality of wave-a, in price.
Assuming the end of (D)-wave near 1700 levels it gives the target of sub-1000 levels
(conservatively)

24. If Diametric is unfolding (and assuming the end of (D)-wave near 1700 levels): Here, from the
extreme price coverage, (A)<(B), (B)<(C) and (C)>(D) and hence it should hold the relationship
(E)>(D), (F)<(E) and (G)<(F).
The next down leg, i.e. wave-(E) should break 875 levels, though temporarily and then followed
by moves confined between 900 and 1600 levels.
Time-wise: as explained in point-11 above, it took 566 weeks from the beginning of the pattern to
centre of the d-wave.
Adding this TIME (566 weeks) to the centre of the (D)-wave gives the TIME of termination of
whole pattern in May 2022. Allowing 10% leeway, the corresponding TIME ranges from April
2021 to June 2023
Price-wise*: The Index is likely to terminate near 1000 levels (+/- 50 points)
The final thought process of above discussion are shown in Orange colored line in the chart
below.

Scenario from 2000 highs to present: Alternate Scenario

Considering the subtleties (which are not explained here), the overall structure from the 2000 highs
may evolve as a Running Triangle or Double Three Running Correction, the latter being the least
possible. Thought process are shown in the below chart.

CONCLUSION2
The S&P 500 is likely to start its cyclical bear phase soon, which drags it to revisit the sub-900 level in
the coming few years while preserving the March 2009 lows.
The structural bear market started from 2000 highs has just passed its mid-way and yet there is long way
to go (for nearly a decade) before reaching its destination (year 2021-2023 or beyond). The pain is just
not yet over.
_________

Preferred scenario for very long-term

The Index should achieve a level of 40000 to 60000 by 2035 and enter into corrective phase, which
may last for nearly a century ranging from 18000 on downside to 100000+ on the upside.

Alternate scenario for very long-term

In this scenario, The Index would prolong the current bearish phase (from 2000 high) for at least next
15 years from now before starting its next impulse move of the Cycle degree. The Cycle degree wave
should be an extended one, which would eventually take the Index to cross above 100000-mark by
the year 2040 (+/-5) or so.