Dear New World Investor:
In Tuesday’s post on the S&P 500 bounce, I said the best resolution right now would be a plunge to 664 followed by a slingshot back up to 750. That would show some energy available to move through 750 and up to 840. I thought it would be hard for the S&P to go right through 750 starting from Wednesday morning’s low at 698, without visiting the 664 area first. My bigger worry was that the S&P consolidated its recent drop by drifting sideways around 700, setting us up for another down leg that could extend to 520.
Well, not to worry. Today’s drop to 678 intraday and close at 682.55 will probably be followed by a touch of 664 tomorrow, after the awful labor numbers come out. That would be driven by lots of investors just giving up, which is exactly what the market needs to clear the decks for a sprint to 750 and, perhaps, just maybe, beyond. We’ll know soon how this will play out.
I’m sure you’ve heard the rant about how a low price/earnings ratio is around 10X or 11X, so based on $50 in S&P 500 earnings this year, the market won’t be cheap until it drops into the 500 to 550 range. The trouble with that analysis is simple:
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The S&P 500 was stretched down about as far as it can get by the close on Tuesday, so this morning’s bounce was both inevitable and no big deal. I did find an old energy level at 664, and the best resolution right now would be a plunge to 664 followed by a slingshot back up to 750. That would show some energy available to move through 750 and up to 840. But there isn’t much in the recent chart to make this the highest probability outcome.
A decisive move up through 710 is the other way to get to 750, but we haven’t even seen that yet. I think that is the highest probability outcome right now. However, it would be very hard for the S&P to go right through 750 starting from this morning’s low at 698, without visiting the
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On Monday NOR flash memory maker Spansion (SPSN) filed for bankruptcy, and SanDisk fell from a high of $9.75 last Friday to as low as $7.88 yesterday, before recovering a bit to close at $8.01. Today, SNDK edged up three whole cents to close at $8.05, after hitting $7.89 intraday.
The NOR flash memory business is a terrible business with no future. SanDisk does not make NOR flash, and never did. They make NAND flash, which is used for the “film” in digital cameras, to make USB memory sticks, and – most important –
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Friday’s Close – Fakeout or Breakdown?
The S&P 500 dropped almost 18 points Friday, broke under 750 and closed at 735 – a bad close. Unless we get one of those extraordinary extended moves that happens once every two or three years, there should not be any further drop over the next few days. However, if this breakdown consolidates by moving sideways under 750 for the next few days, we will have to take it very seriously. Although the daily chart is fully extended, the weekly chart is fully loaded for a big move after its extended consolidation period since the first touch of 750 back in mid-November. So if the S&P consolidates now and the daily chart also gets reloaded, a downside setup also will be fully loaded and ready to go.
The two-year upswing from late 1994 to early 1997 left very few significant consolidation or energy levels below 750, so the next really big target level is where the big bull market launched in the mid-’90s, all the way down at
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