Wednesday, January 2, 2013

1/2: S&P 500 update: Budget Agreement rally soon to fizzle?

As expected, the Budget Agreement passed by the U.S. House and Senate (a short-term patch job to a long-term structural dilemma) has caused a short-covering rally and the S&P 500 index is now at relatively strong short-term resistance, indicated by the following:

  • the index is at the upper Bollinger Band level, where it has consistently met with short-term resistance over the past few years; and
  • both RSI and MACD are diverging.

Although we may linger near the highs for the next few days, possibly into next week, I think another selloff is coming in mid to late February before we see further highs. I do expect new all-time highs in the broad markets this year but only marginally so. The intermediate technical picture for the broad markets, however, is that a new crisis low should occur (lower than the 2009 low) sometime in 2016 or so, based on the Elliott Wave expanding diagonal shown in the monthly chart at the bottom.

Daily Chart

Monthly Chart

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