The S&P 500 has pushed above the upper trend line in the trend established early in the rebound from 2009 crash lows. Is this chart formation something investors should worry about?
The YouTube video accompanying this article is available here.
This video looks ath the S&P 500 weekly charts to show what has historically happened when the S&P 500 breaks above the upper trend line during the 1983 to 2007 timeframe and that the S&P 500 has again moved above the upper trend line. Ron has placed parallel trend lines within the charts provided by ScottradeELITE. Similar charts are available at Big Charts along with other charting services if you would like to try your own.
The video shows that in 2007 the S&P 500 broke above the upper trend line and held above the upper trend line for some time. It had two significant pullbacks during that time that rebounded higher in this trend before breaking lower for a third time. It did not regain the high it fell from in that break lower until March 28, 2013. This drop back below the upper trend line was seen just before the largest crash ever recorded on the S&P 500.
In 1999 and 2000, the S&P broke above the upper trend line several times resulting in three significant drops. The index rebounded above trend for a fourth time, but it did not recover the high seen prior to the fourth drop until May 30, 2007. The fall from the upper trend line in this instance saw the second largest crash on the S&P 500.
In 1987, a move above the upper trend line resulted in one significant pullback before a rebound back above this level saw the index drop in excess of 33%. This was a secular bull market crash, and the S&P 500 continued pushing higher for 12 more years after this crash before returning to a bear market in the drop in 2000.
Not all moves above the upper trend line have resulted in crashes, but the break above trend usually leads into a large drop, like the near crash in 1990 and a nearly 18% drop in 1998, along with several instances of drops near or in excess of 10%.
Although not mentioned in this video, the S&P 500 has already seen one significant pullback since initially pushing above the upper trend line in the current trend.
The push above the upper trend line is also near a potential resistance level that research has led Ron to believe could cause a large pullback on the S&P 500, possibly reaching crash potentials. Although the 2000 to 2140 resistance was mentioned in early articles, it has been a fixture in the current cautions section of Ron’s articles since March.
As explained in past articles, as the index works its way into the 100 L at 2000 (from 1975 to 2025) it will begin to enter the level identified as a potential topping area during data evaluation beginning in 2008. These data evaluations make it appear resistances met between 2000 and about 2140 could have the potential to cause a large drop, possibly reaching crash proportions.
These data evaluations do not mean a crash is certain within the 2000 to 2140 range. The data evaluations only identified this level as one with high potential to cause a large drop, possible reaching the 25% to 35% range; although a fall seen low in this range might not reach these levels. This range also holds most of the specifications identified in the first crashes of a market entering into a secular bull.
Historical price data for the S&P 500 used in this article is available at Yahoo Finance.
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Have a great day trading,
Disclosure: Ron is currently about 75% invested long in stocks in his trading accounts. Although he has no intensions of going flat into the possible resistance level from 2000 to 2140, he has been slowly reducing his investment level as the index nears this potential resistance and is currently at his lowest investment levels since 2007.
Some of the trades made during the past week may have been due to repositioning investments as discussed in previous articles.
Disclaimer: The information provided in the Stock Market Preview is Ron’s perception of the current conditions and what he thinks is the most probable outcome based on the current conditions, the data collected and extensive research he has done into this data along with other variables. It is intended to provoke thought of the possible market direction in his readers, not foretell the future. Ron does not claim to know what the stock market will do. If the stock market performs as expected, it only means he is applying the stock market history to the current conditions correctly. His perception of the data is not always correct.
This article is intended to provoke thought about investment possibilities. Acting on the information provided is at your own risk. You are urged to do your own research, and where appropriate, seek professional investment advice before acting on any information contained in these articles.