1. This SPX 3yr chart with envelope provides a history of past drops from the upper boundary the envelope defines.
2. There are three kinds of drops from the upper envelope boundary. The light blue arrows denote drops that bounce off or barely exceed the 55EMA line, none of which exhibit a sharp drop line. There is a single mechanical grind down denoted with the grey arrow. The red arrows denote sharp drops precipitated by events, the latest a combo of Argentine sovereign debt default and below prediction EU+US econ events.
Note that four of the past five sharp event drops that exceed the 55EMA continue to the lower 55EMA envelop boundary, with the fifth (Aug 2013) nearly so but exhibits the same secondary traits.
This past week experienced the sixth sharp event driven drop that exceeded the 55EMA within this three year period.
3. The MACD secondary trait exhibits a characteristic “sound drop” below the horizontal line on every event not seen on the smaller 55EMA bouncers (blue arrows). The current MACD line is right on the horizontal line suggesting further downward movement is likely.
4. The SlowStochastic secondary trait provides two assurances. 55EMA line bouncers both terminate in sharp spikes and often above the 20 line. Event drops terminated in jagged double bottom continuation bounces with no exceptions and one compound bottom, Q3 2012. The current SloSto has just exceeded the 20 line suggesting that a jagged double bottom will denote when the terminating bottom has been reached.
From the current index position there may be a few days of chop or even bounce, or there may be a day’s pause before a continuation drop to the lower envelop boundary near SPX 1850.
Look for the SloSto jagged bottom before going heavy JBTFD.
Party gift: http://tinyurl.com/qb5onls
RayW
