The S&P trend moves between well-defined trading bands. The market breaks above the resistance level and moves steadily toward the second resistance level calculated by the height of the trading band. The market consolidates near the second resistance level and then retreats. The retreat may use the lower level in the trading band as a support level. The rebound from this lower support level moves above the top of the trading band resistance level. The process of breakout, consolidation, retreat and rebound breakout is repeated. This creates a step and stairway trend pattern. This pattern has been in place with the S&P index since October 2011.
This is a strong trend pattern, with each up-thrust target defined by the width of the trading bands. The market has broken through the consolidation around 2000. The trading band calculation provides a target near 2150. This target is in reach, with the rebound rally from the low near 2050.
The S&P index shows it takes between five and eight months for the index to reach and then breakout above the top of each trading band. This suggests the S&P can move above 2150 before the end of August.
A breakout above 2150 has a target near 2300. Using the same time method, this suggests 2300 can be achieved around March 2016.
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This is a very steady and well-supported uptrend. The long term group of averages in the Guppy Multiple Moving Average indicator have remained consistently separated since November 2012. When the S&P retreated substantially in October 2014, the long-term GMMA did not develop any compression. This confirmed the exceptional strength of this uptrend. The recent retreat in the S&P also has not triggered compression in the long-term GMMA.
The S&P 500 is not showing any pattern development, which would indicate a major correction or change in the trend, so the uptrend has a high probability of continuing in the second half of 2015.
There are three significant patterns that indicate a major trend change. They are best seen on a weekly chart where each candle represents a week of trading activity.
The first of these patterns is the head-and-shoulder pattern. The second is the rounding top pattern. The third is a blow-off top pattern, following a period of extreme upward momentum. None of these three trend reversal patterns currently appear on the S&P chart. Nor do these patterns appear on the Dow or Nasdaq charts. This suggests there is a low probability of a change in the trend direction in the second half of 2015.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.