A Fearless Forecast for the SP500 for May 2010

My fearless forecast for May 2010 for the Sp500 is a fairly swift decline that occurs in the first 3/4 of the month of May 2010. 

It appears as though the SP500 is still trading within this somewhat large ascending broadening wedge formation that should lead to a rough target of 1120.  Whether we get there in May is and open question.  But I certainly think it is a decent possibility considering how fast the previous three price corrections were within this ascending broadening wedge formation.

The first two legs down occurred within about 8 trading days and the third was about 13 trading days.

Will this leg down occur within may and be between 8 and 13 trading days ?  I think it could and it would be somewhere within the neighborhood of a 10% correction.

sp50020100502

I think most are not really open to such a large and swift correction at this point.  The recent persistent rally has ‘trained’ a lot of people into believe that the market must always be up on Monday and usually Friday as well and that anything greater than a 1 to 3% correction is very unlikely.

The solid green line in the chart above is the typical measured target of this ascending broadening wedge assuming all goes according to plan in the weeks ahead.

The very high volume that has come off of the recent highs has given me extra confidence that this correction will soon be underway.  When you see high volume down candles like that off of such a euphoric persistent market high, be very keen to markets next move.

Breaking under 1180 would be a key signal that the market is ready for another leg down.

Posted in Index Trading, SP500
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4 comments on “A Fearless Forecast for the SP500 for May 2010
  1. shrihas says:

    Hi,

    In the last up leg of S&P everyone (excluding you) was saying that 1205 is huge resistance. But market turned at 1210.7 and went to 1189. Today back to 1204 at the moment. Market will turn on the day when there will be huge positive news. For example; coming labour market report. That day market will spike by about 8 points in S&P and same day will give sharp downward reaction…… and I am waiting for such great news, followed by sharp rise ..

    Great Article….

    Thanks,
    S

  2. Tom Tom says:

    The volume today was really horrible despite the large number of points on the upside. So my sense is that today’s rally will not get much follow through later this week. But you are right, market might delay until Friday to make any major decisions. I wish it would not however, since I love to see more volatility sooner rather than later.

  3. shrihas says:

    Hi Tom,

    Yesterday, volume could have been lower due to holiday in the UK. At the moment, as I see DOW is flirting with 11000 level and S&P at 1180 level. I think it will not fall anymore. It will definitely give false UPSIDE breakout. Everyone is of the opinion that markets are forming similar structure like February. That is why you see most of the people will try to get short. In my opinion, this week we will cross S&P 1219.8

    Please expect huge fall starting next week.

  4. Tom Tom says:

    Today’s drop and heavy volume confirms my bearish forecast and I expect plenty of more downside to come in May. This correction is real and TZA continues to be the best online trade for May 2010 in my opinion.

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