Standard & Poor: A Fitting Description to the Index

That's right. Not only is the name of the index S&P 500 (SPX) known as Standard & Poor's but that is the best way to describe the condition of the index right now. Why say something like that about the broader based index? Take a look at how the long term chart looks and tell me if you see something pretty.

After rising up to the year 2000, the whole index has gone sideways for more than a decade. No wonder, many have had a hard time making money out of this market. Everyone was trading in a chaotic environment.

What we see on the long term chart is that SPX has formed a double top pattern that has spanned nearly 12 years. The neckline has been pegged at 770. It was breached Nov. 20 but the index has gone above it again on Nov. 21.

It's quite possible that the index will just bounce off this neckline and climb to higher levels. But the MACD tells us that's highly unlikely and that this is bound to breakdown soon as the oscillator has been lingering below the zero line. Once the neckline is broken decisively, we can expect the SPX to drop to a downside target of 375.

What would this all mean? Even if you don't trade the US market, this would affect the other markets that you do trade. It is a known fact that many countries have placed money in various funds that invest in the US markets. Normally, these funds only go long and it would be quite illogical for financial institutions to place their money in a fund that would short sell their investments. Unfortunately, going long in a dangerous market like the US is like playing russian roulette as that means going against the trend, which is downward.

When the index comes crashing down, expect a lot of trouble to come in many economies. In fact, it's already happening with layoffs being dealt left and right, the biggest of which is Citigroup (NYSE: C) with 56,000 job cuts so far. They've even gone as far as considering the idea of selling the whole company.

Remember the biblical saying: Those who humble themselves will be honored and those who honor themselves will be humbled. The time for the US to be humbled is at hand.

Double Trouble

You think we're in a lot of trouble now with the DJIA and other US indices moving wildly and widely, wait till you see this.

One of the lesser noticed index, the S&P 500 (SP500 in bigcharts.com) should be a better gauge of how things are doing as this is an index that is represented by 500 issues, hence the name. Because of what is seen here, it's scary to think that this bear market is just the tip of the iceberg.

It is quite clear in the chart that the S&P500 is right in the midst of a consolidation. Whether this is a double top, or a possible triple top, we still don't know. What we do know is that this seems to be a topping pattern that will reverse the previous uptrend. When this will be, we still don't know.

What we do know is that the support of the index is currently pegged around 770. Should this break, we could see the index drop to a target of 383. That's the scary part here. Things are already battered as it is. It appears there's more where that came from.

Notice also how the MACD has been oscillating throughout the whole duration of the chart. It's been consolidating around the zero line, telling us that as early as 1996, the index has been consolidating all this time.

One more thing to note is that the volume has picked up since the downtrend started October 2007.

Things will get more brutal in the coming months. Try to enjoy your Christmas and try not to think about this yet. It seems to be inevitable anyway.