An options expiration week opening with the market gapping lower and subsequently falling every day to end the week on a sour note rather reveals (particularly via increasing volume) a consensus whose retreat is not likely done, and this no matter how "oversold" some measures have become (RSI to name one). There is every reason to believe, even at this early hour, the worst is yet to come. No shortage of technical measures support this probability by their very weakness right now — a weakness that ended the week not only unrepaired, but in fact deepened.
Straight away, the S&P 500 has another good 100 points lower before any kind of bounce is likely to materialize. Next week could be nasty.
The first wave of last year's (2011) decline sank the S&P 500 to its rising trend line off March '09 bottom. With last year's decline and this year's move to a new high, post-March '09, a new rising trend line offers guidance to where the S&P 500's decline from its May 1st, 2012 high might likely end. Adding to this probability is a line of S&P 500 support/resistance at 1200-ish, this going all the way back to 1997.
Both weekly relative strength and momentum are well-poised for a further setback whose depth probably is a question of whether the trans-Atlantic banking system implodes with the euro-zone, or, somehow, the right balance of debt restructuring and hyperinflationary bailout forestalls the banking system's collapse. Although I might be convinced on account of history to side with the darker colored projection above, I am having a hard time imagining monetarist magicians pulling a rabbit out of their hat. There's a good chance the fat lady is about to sing and send March '09 lows into the dustbin of "generational low" history.
Two alternate Elliott wave counts assigned to the market's counter-trend rally off March '09 bottom are shown above, and these correspond with projections drawn on the S&P 500's weekly chart. Presently, the configuration of support/resistance likewise finds 1200-ish a reasonable S&P 500 target.
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Analysis centers on the stock market's path of least resistance. Long-term, this drives a simple strategy for safely investing a 401(k) for maximum profit. Intermediate-term, investing with stock index tracking-ETFs (both their long and short varieties) is advanced. Short-term, stock index options occasionally offer extraordinary profit opportunities when the stock market is moving along its projected path.
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