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Wednesday, 26 August 2015 09:35

S&P 500 - Can tumble to 1000 [Chart of The Week]

S&P 500 monthly chart

Prices have a tendency to revert back to their long term mean. Though stock market history is not that long enough to empirically test this phenomenon for bigger cycles (cycles lasting several years) but even if one goes by the shorter term price cycles, it has been an established fact that prices do revert back to their long term mean. A similar phenomenon is the falling back of prices to their trend line support.

In one previous article it was mentioned that Russian Index is near its 17 years long trendline support, will it hold - well it has broken that support now and if there is a monthly closing significantly below that line, it may have serious implications. It is a great example of showing that even such long term trends can come under threat.

In case of S&P 500, the scenario is totally different, it is way above its long term trend support line - support is near 1000, and current price is near 1900! Can S&P 500 fall by almost 50%? It has already done so in 2002 and 2008.

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Published in Investors Blog

 

The Russian index RTSI had breached this 17 year long trend line in late 2014 but managed to bounce back above this line. Technical observations point out that if it falls below this line, it may fall to drastically low levels. The first target for RTSI is its previous low of last year at 578. And the next major level is at 265, which is the 161% Fibonacci retracement of the current rally of last one year. This is the level that RTSI was at in 2001! There are possibilities that it RTSI may fallback by 14 years from the current stage.

Even a fall to 578 would be a big blow with repercussions for whole world. Even if Russia is not having major part in global trade of major economies, there would be geopolitical impacts affecting everyone.

The fact that RTSI is still making lower lows and is yet to make a higher high since 2011, signifies that it is in clear downtrend without any visible indication of a reversal. Will it be able to recover? It needs to be watched closely.

Published in Investors Blog