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Wednesday, March 28, 2012

The Big Picture in SPX: March 28, 2012

Big Picture:

The past twenty years can be viewed in terms of channels (both red and purple) and rising wedges.  Here, we see the smaller yellow wedge set up within the larger red wedge.  Both are fairly advanced (especially the yellow.)

We also have a red channel line from the Oct ’07 high connecting with current prices. I believe these channels are valid because they’re exactly parallel a trend line connecting the 2002 and 2009 bottoms.

Overall, the red channel lines have had significant influences on prices — particularly short and medium-term turns.  The purple channel lines have influenced many of the major turns.  SPX is currently at the intersection of red and purple channel lines.

Medium Close-up:

Zooming in, we can see some meaningful Fib ratios in the chart:

(1) The apex of the yellow wedge is near the Fib .886 (purple) of the Oct ’07 to Mar ’09 drop; it tags the red rising wedge at around May 7 at 1462.  Rising wedges rarely make it to their apex but tend to fall out around the .618 mark (in time.)

(2) there is a nice looking Fib time series defining major highs and lows (red.)  The series completes at the apex of the larger (red) wedge.  We’re within spitting distance of its .618, which is also very near the apex of the yellow rising wedge.

(3) there’s a well-formed Butterfly pattern that began July 4 at 1356 and made its low at 1074.77 in October.  It’s visible as the yellow Fib pattern on the chart; the 1.272 Fib is just overhead at 1433.11.


Using the October 1074 low as “0%” and the yellow rising wedge apex as the 100% mark for the Fib time ratio, we are currently between the .786 (Mar 21) and .886 (Apr 12) levels.  From a price standpoint, we’re at the .886 of the 1074 – 1464 rise (the yellow wedge’s price range.)

While any jolt to the markets could unravel this hugely overbought market, it’s just as likely we’ll go on to complete the Butterfly pattern at 1433 sometime in the next two weeks.  If so, however, we should see a mild correction first.

The key is the yellow rising wedge.  The bottom trend line is currently about 1382.  If we can stay inside a little longer, 1433 clearly remains on the table.


  1. PW, good work.  Pardon me with an ironic question, as I find out your big picture is extremely bullish.  I though you were not too bullish in the medium and long term.  In the big picture, the edge of red rising wedge is leading to at least 1600 SPX.    And the trend of the rising wedge is moving up.  So, despite of the up and down inside the red rising wedge, SPX will reach 1600 or above in the red rising wedge.   Of course, the next question is if it gets to 1600, what happens next?

  2. Good question.  First, rising wedges very rarely go all the way to the apex.  The 2007 rising wedge, for instance, had an apex of around 1770 in Feb 09.  But, it only got to the .786 Fib in both price and time (see the chart below.) 

    Along the way, SPX formed and broke down on many rising wedges.  The second chart shows how often and how reliable the pattern was.

    Most rising wedges break down around .618 of their time from inception to apex.  The current one is about 3-4 weeks away from its .618 (Apr 24ish), which is also right near the apex of the yellow rising wedge (which, itself, is near the .786 of its time line.)

    So, while I'm long term bearish, I can't say for sure whether the larger rising wedge will break down at the .618 (time), the .786, the .886 or whatever.   Again, most take a dive at the .618, but if we repeated 2007's pattern, the .786 isn't till Feb 2013.

  3. PW, great analysis. Do you mind updating us about the VIX action today? It kind of collapsed at the last hour after being up 10%, kind of remind me of Feb 10, when I look at TVIX/UVXY. I guess it is still stuck in the falling wedge?? The past 2 days, TVIX/UVXY certainly made some impressive moves, signal of big moves to come? Love to hear your insight. Thanks

  4. Unique.  Provocative.  I haven't seen this analysis anywhere else.