|When we listen to CNBC debates, there are many market participants who believe that the bear market in the US will continue, and that the recent upward move in the indexes was an upward correction in a bear market. That is what they believe, and they put their bets on it. Charts, however, suggest otherwise.|
|FIGURE 1: S&P 500, MONTHLY|
|Graphic provided by: AdvancedGET.|
|Figure 1, which is a monthly chart of the S&P 500, shows the following:|
- A move to a fifth-wave high in July 2000.
- A correction of wave A to 814.41 on October 2002.
- A rise in a B-wave to 1547 on April 30, 2007.
- The fall in wave C to 735.50 on February 2009.
- From the low of February 2009, the index rose in a new bull market in what could be a wave 1 of wave I. In other words, a new bull market appears to be forming that could last into the year 2026 (see my article on Kondratieff wave elsewhere in Traders.com Advantage.)
- This is confirmed by the moving average convergence/divergence (MACD), which has turned and could finalize a buy signal at the low of wave 2 of wave I.
- The chart is suggesting that the low of wave 2 of wave I could occur in September 2009. This date is determined by the Gann lines shown. Wave 2s are usually a 72% retracement of the rise of wave 1. This correction will definitely have the bears shouting "hallelujah" from the rooftops.
- WD Gann's wave analysis is a study in itself. Needless to say, Gann's charting techniques led him to become one of the greatest chartists of the 20th century with many followers.
- The chart suggests a wave 2 correction to 800.49 by approximately September 2009. This will bolster bear market pundits, and give wonderful buy opportunities for bull market believers.
To conclude, we could expect the S&P 500 to correct in a wave 2 of what I believe is a wave I of a new bull market, probably finding a low in September/October 2009. This will give us the opportunity to look for lows in the stocks we would like to own. For the next few months, therefore, be prepared for a down market, or with luck, more of a sideways correction as the Obama/Geithner financial strategy takes effect.
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