The S&P 500 Index Is Ripe for an Upside Reversal

Though prices stalled and retreated on the first upside attempt, they could well break the remaining resistance on the next attempt.
By Bruce Kamich ,

NEW YORK (TheStreet) --The major averages have made wide swings the past four months from oversold to overbought and back again. The $64,000 dollar question -- for those of you who remember Hal March -- is, where are we going now?

This chart of the S&P 500 Index I:GSPC shows us a couple things. We can see a double bottom in late August and late September. When prices went above their September highs we had a breakout. Prices reached their initial price target from the bottom pattern (the height from the neckline to the peak between the bottoms added to the breakout point). The recent rally got prices overbought, and last week's decline got prices oversold -- again looking at the stochastic indicator in the lower panel. Prices were in a 2,040 to 2,130 trading range (resistance), and the rally to over 2,100 carried more than half-way through the resistance. Though prices stalled and retreated on this first upside attempt, they could well break the remaining resistance on the next attempt.

This Japanese candlestick chart of SPX, above, shows us what might become a bullish engulfing line/pattern by today's close. Candlesticks give you quick reversals. With sentiment bearish due to the recent decline and international fears right when prices are oversold, you have the right ingredients for an upside reversal.

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