S&P 500: A Long-Term Technical View

naufalsanaullah's picture

Looking at long-term trendlines is important to today's trading, as this secular bear market has caused finding antecedent price levels to require stretching back to decade-long charts and long-term secular trendlines are being broken and re-tested.

Here is a look of the S&P 500 from its 1982 secular low to its bull market top in 2007:

There is an obvious uptrend, defined by the gray line in that chart. This uptrend line turns out to be significant support/resistance going forward, as well.

Here is the S&P 500 in June 2008. After a March test of the gray trendline from the chart above, the market breaks below the line on heavy volume, marking the confirmation of a technical reversal of the uptrend line from 1982-2007.

Trendline breakdowns often show re-tests of the trendline, as support broken becomes resistance, before continuing the new trend. After the oversold conditions of summer 2008 and the collapse of the commodity bubble (inflation was the big concern to consumer spending at the time), a retest after the breakdown was even more likely, and in August we got one:

With the trendline broken and re-tested, it was time for the continuation of the trend reversal. And reversing a 25 year bull market should be quite sharp correction. Indeed, the market crashed from there:

Here's the same chart zoomed back out to show the entire 1982-2007 bull market and its breakdown via support trendline breakdown. As you can see, the technicals define the trends quite well:

The purpose of the above exercise, concerning the significant 1982-2007 bear market support trendline, is to display the importance of long-term technical trendlines and how accurate they can time trades to be. Below is the S&P 500 from 2000-present, with a significant long-term support/resistance line at around 1080, about the same level where the market sold off from today and has been finding resistance for the past couple weeks:

Anyone see that major support/resistance line?

Here's a look at the significance of long-term support/resistance trendlines:

 

This chart is of 2000-2007. Red trendlines are drawn in at important support/resistance levels. The levels are:

  • 775
  • 875
  • 950
  • 1010
  • 1080
  • 1170
  • 1315

And now the 2007-present chart, with the same trendlines kept in:

No less than fifteen separate pivots/touches at those support/resistance trendlines.

One specific trendline is of significant relevance at present, and it is the 1080ish level. Here again is the S&P 500 with that level (the same level as highlighted in the first chart at the top), with a zoomed-in chart:

This is a scary chart development for equities, particularly considering that the equity market is in a diminishing-volume rising wedge pattern, the oil market (which bottomed two weeks prior to equities) is finally breaking down from its long-developing ascending triangle, and bond yields (which bottomed three months prior to equities) topped out three months ago and are approaching another breakdown.

Technical analysis isn't an exact science by any means and the above comments aren't to be construed as investment advice of any sort, but the concept of support/resistance trendlines, especially in the context of today's quantified/processor- and algorithm-driven market ecosystem (even before the momo-chasing HFT-executed SLP-financed speculative equity rally off of March lows), is, unlike other technical indicators like RSI and MACD, based in a priori logic. Chart analysis is, to me, just as important as fundamental analysis. A trade/investment thesis is useless without timing the transaction properly.