A Look at How Technically Predictable the Market Has Been Lately

Having flashbacks to the days when triple digit swings in the Dow were just another day at the office? This week has felt a lot like 2009.  Let’s try to make sense of it so far.

Looking at the chart of the S&P, we find that the Monday and Wednesday close is a support level that dates back to the March 12 close of 1,552. Until April 5, the S&P traded in a one percent range reaching a high of 1,570 on April 2. The index formed a base allowing the oscillators to unwind. Technicians view basing patterns as healthy price action in a bull market.

On April 5, the index sat at 1,553—just slightly above the support level of 1,570. By April 11, the index had rocketed up 2.5 percent to 1,593. This appeared to be a significant breakout from the base—something technicians were expecting.

Then came this week. A sharp sell off in commodities that started the previous Friday sent the index plummeting to 1,552 on Monday—roughly the April 5 level before the breakout occurred.

The next day the index closed at 1,572. Those familiar with Fibonacci retracements will notice the nearly perfect 50 percent gain from Monday’s 40 point tumble. Wednesday, the index closed at 1,552—Within one point of Monday’s close and right at the March 12 level of support.

Let’s sum up:

• March 12- 1,552 established;
• April 5- traded in a range of 1,552 to 1,570 until this date;
• April 11- S&P had gained 2.5 percent to close at 1,593;
• April 15- Fell to 1,552—the March 12 support;
• April 16- Retraced 50 percent of the loss to close at 1,574;
• April 17- Fell back to 1,552—the March 12 support.

Coincidence? Hardly.

Now that we found technical order in the chaos, let’s answer the question that everybody is wondering: Have the events of this week caused technical damage to the markets that would signal more downside action ahead? Although nobody can predict the future, we can analyze the present and past. As of Wednesday’s close, there is no technical damage to the S&P.

The March 12 - 1,552 support level is important, but the focus will be on the 50 day moving average currently at 1,542.43. That’s a little more than 0.5 percent below Wednesday’s close. If that level is taken out on heavy volume, the S&P will likely see the same price action that Apple AAPL saw Wednesday as a key level of support was breached. eBay EBAY and American Express AXP posting disappointing earnings on Wednesday could make 1,542 more difficult to hold.

READ: Apple Broke Down - What do the Charts Say Now?

Also of note, is this chart of the S&P going back to 1960. It reveals something alarming. At current levels, the S&P has formed a triple top. If the index fails to break out of this long-term pattern, some technicians will argue that a huge sell off could be in store for the near future.

On the other hand, if a break above the previous two tops takes place, a whole lot of upside could be the future.

Disclosure- At the time of this writing, Tim Parker was long Apple.