AMERICA RECESSION TARGETS

The America market is already in recession. The monthly Standard and Poor’s S&P 500 index chart provides three important targets. The first is a target level for a normal market retreat which is usually followed by a rebound. The second support target level defines the recession level. The third support target level defines the depression level.

The monthly S&P 500 index chart shows a rounding top pattern. The 2008 September market falls carried the S&P 500 to the rounding top pattern target level near 1200. A rebound was expected from this level but the 2008 October market falls carried the market well below this level and to the long term support level at 1050. This is the lower level of a trading band that developed in 2003-2004. The failure of the support level near 1050 was the first suggestion of a developing recession in America.

The next strong historical support level is near 800. A fall to this level confirmed a recession in America. The rally after the American election has failed because it is unusual for a trend recovery to start from a point that is between confirmed historical support and resistance levels. The rebound from near 840 has no historical precedent. This suggested it has a low probability of developing into a genuine rebound point. The rally from this level is unsustainable and there is a high probability the market will test support near 800. This is the level where traders will look for consolidation patterns to develop.

This is a Recession target level and economic recovery will take 4 to 8 months. This will include several rallies and severe retreats. Consolidation at this level confirms a recession.

Failure of support near 800 will allow the market to fall towards long term historical support near 500. This is a depression support level target. A minor support level developed around 670 1996 but the strong well tested support/resistance level at 500 developed in 1994 and 1995.

The market could fall quickly to this level but the more provable outcome is a slow drift from recession to depression with a gentle slide and a trend with lower levels of volatility. Recovery from an economic depression will develop over one to two years. Trading conditions in this market are very different and new investment strategies will be required. The rebound from the recession target at 800 will be slow because new money is required to develop a new uptrend. Any rebound from the depression targets will be more difficult.

Successful testing of support at 800 is the key requirement for a market recovery.



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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.