The first chart below is an SPX daily chart (candlesticks and right scale) and NYSE Oscillator 50-day MA (red line and left scale) comparison chart. In Oct, the NYSE Oscillator 50-day MA fell to negative 25. In Jan, three months later, the Oscillator's 50-day MA rose over 50 points to 25 on a strong SPX rally and uptrend. Over the past three months, the Oscillator's 50-day MA fell to negative nine, while SPX continued the uptrend. The two circles show somewhat similar consolidation periods and the first circle is a support area for a potential SPX pullback. SPX major resistance is the upper Bollinger Band, currently 1,317. It's more likely SPX will begin a pullback from around 1,317 than rise to around 1,330 first, which the first circle suggests.

The second chart is a NYSE Oscillator 50-day MA (red line and right scale) and SPX daily performance (blue line and left scale) comparison chart. Remarkably, SPX's daily performance is highly correlated with the Oscillator's 50-day average performance (also shown in first chart). The second chart shows that the six times the Oscillator's 50-day MA rose to about 25 or higher, it eventually fell to about negative 20 or lower. Moreover, the second half of the Oscillator's 50-day MA downtrend more often than not causes SPX to fall more than the first half. Furthermore, when the Oscillator's 50-day MA hits bottom, SPX often also hits bottom. Only six observations, which reflect the complete data, is not statistically significant. However, the Oscillator's 50-day MA is accurate predicting both SPX tops and bottoms, and the correlations are high.

A crude estimation is the Oscillator's 50-day MA will fall to negative 20 and SPX will fall to around 1,275, which was a previous key level. If the Oscillator's 50-day MA falls below 20, SPX may fall between 1,245 and 1,260, where there are several major support levels. At that point, using only the Oscillator's 50-day MA, SPX may begin a rally. Also, the SPX bearish VIX 200-day MA and the SPX bullish CBOE Put/Call 200-day MA have generally offset each other, although the Put/Call MA has been stronger. One possible scenerio is SPX will fall to around 1,260, perhaps in May, and then trade in a volatile range for several weeks, e.g. between 1,250 and 1,275 (to increase VIX), rally until Jul or Aug, and fall until Oct.

Charts available at PeakTrader.com Forum Index Market Forecast section.

Arthur Albert Eckart is the founder and owner of PeakTrader. Arthur has worked for commercial banks, e.g. Wells Fargo, Banc One, and First Commerce Technologies, during the 1980s and 1990s. He has also worked for Janus Funds from 1999-00. Arthur Eckart has a BA & MA in Economics from the University of Colorado. He has worked on options portfolio optimization since 1998.

Mr Eckart has developed a comprehensive trading methodology using economics, portfolio optimization, and technical analysis to maximize return and minimize risk at the same time and over time. This methodology has resulted in excellent returns with low risk over the past four years.