Downside Continuation Pattern
10/24/2005
The weekly chart of the S&P 500 (SPX) shows that despite all of the crazy volatility that transpired during the past five sessions, the SPX failed to "make good" on the prior week's pivot low at 1168.42.
Although this past week the index climbed to a marginal new two-week high, it failed to follow-through and in fact closed Friday lower than the previous Friday (1179.59 vs. 1186.57).
In addition, it's important to notice that Friday's close was below both the August 2004 support line and the 1-year moving average, which is not a positive sign and could prove to be a negative one.
One way to look at the past two weeks is as a sideways congestion period below the 14-month support line, which usually resolves itself in a move in the direction of the underlying near-term trend -- in this case, down.
In any case, from a weekly SPX perspective, only a climb that sustains above 1197.30 will indicate that the two-week congestion period has morphed into an October bottom, rather than a downside continuation pattern.
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