Technical analysis of S&P 500

Just wanted to throw this out to see if it holds and water (in terms of predictive power), and also educate the masses :)

Technical analysis is a highly debated topic. The way I see it is that if most of the traders believe in it, it makes sense to follow the logic of the crowd (see what happened to the mavericks ;))

S&P is right now at about 879. Looking at the 3 month chart, notice the trend line from Nov 21st low (741) to the Dec 5th low (818). Generally, on the downside, stocks will go back and test either moving averages or trendlines. So based on this, the current trendline is near 850. Interestingly, the 20 day moving average is at 857.

Now there something a lot of technicians love called the head and shoulders patters. What does it look like? Well, head and shoulders!! A bigger peak with two smaller peaks at either side. Now consider and inverse head and shoulders pattern...a lower low bounded by two higher lows. The Nov 21st value at 741 can be thought of as the inverse head and the left side higher low is the Oct 27th value at 852. So if this theory is to hold, then 852 should be the max downside.

Now, the fun part is the reaction, or the "sentimental" low which stands at 840. This has been a value we've tested a number of time both on the downside and the upside. Below this, there will be a number of stop losses that will trigger which can pull the index down pretty sharply. 

So the way I see it, we should have a low between 840 to 850 before moving into gear for a year-end rally.

I'll try to post some pictures later to illistrate all of this. For now, hope this link to the yahoo finance technical analysis chart works.