Tuesday, 24 February 2009

What wave count?

The S&P 500 (SPX) closed at its lowest level for almost 12 years.

The long term monthly chart for this index covers a fifteen year period and suggests that technicians must struggle to find any obvious clues as to where the next level of support kicks in.

I showed the chart to a friend who knows nothing about technical analysis and the comment was that it looked like an obvious "M" pattern. Simple when you think about it.

Furthermore when dealing with monthly granularity patterns such as revealed in this chart it becomes rather obtuse to try to identify any kind of complex wave count based on any of the well known theories regarding such, especially Elliot Wave Theory.

In hindsight, which is always 20/20, it seems abundantly clear now that the double top in late 2007 with the subsequent failure in the summer of 2008 to break back above the 20 month moving average (the blue line on the chart) was a major sell signal.

No comments:

Post a Comment