The S&P 500 outlook for October 2013 (we still have September 30 to trade) is that we remain in an overall uptrend. Here I’ll look at where I anticipate the current pullback should end and where the price is most likely to go next. While the majority of the analysis will be on the Emini S&P 500 (Dec 13), corresponding levels on the SPDR S&P 500 (SPY) ETF will also be mentioned.
The chart below shows the Emini S&P 500 (Dec 13) contract with some prospectively important levels.
Figure 1. Emini S&P 500 Index Futures (December 2013) – YTD (click to enlarge)
On the chart above I have drawn 2 horizontal support lines–one near 1673 [we are near this level early on the morning of September 30] and the one below near 1644. These are the most likely retracement points for the current pullback.
If the price continues to decline, before making a new high, the next support target is 1644. If the price falls much below that (1638) it is warning sign that the uptrend is in trouble. Until that occurs, though, I am expecting the price to continue to appreciate once hitting (either of) these levels.
Assuming either of those support levels hold then the trend remains up. The next most likely upside target is between 1736 and 1752. Given that the latter part of this trend has been moving in a wedge formation (typically a reversal pattern in this context) this first target resides along the the topside of this wedge. If the price advances aggressively there is another target at 1775. If this area is reached it is most likely a “throw-over,” which is an aggressive break higher out of a wedge, but which is typically followed by a sharp reversal.
Figure 2. SPDR S&P 500 (SPY) Chart – YTD (click to enlarge)
Relevant support levels here are 168.50, which was touched on Sept. 27. Next support is at 165.91. If the price falls much below that (164.25) the uptrend is potentially in jeopardy.
The most likely upside target is between 174.80 and 176.25. If we see a strong “throw-over” the target is near 179.50.
Average daily movement (based on ATR) is about 15 points.
S&P 500 Outlook for October 2013 – Summary
Overall the trend is still up for the S&P 500, and I see little evidence in the price movements to change that outlook just yet. Unless we create a significant lower-high and/or lower-low (on the daily chart) this uptrend is intact. The price is moving within an wedge, which is typically a reversal pattern since the overall trend is taking on this converging price action. The wedge could be in place for some time though, as prices continue to creep higher. Throw-overs are typical, especially following a long trend like we have seen. Therefore, quite likely we could witness a significant reversal several months down the road, but that isn’t of concern in the near future unless the cautionary conditions mentioned prior develop.