Trendlines...

One of the most powerful methods of predicting future market behavior can be found in the concept of trend channeling. This is based on the concept that most price trends tend to happen within the confines of a well-defined channel. The recent behavior of the S&P 500 is no exception...

If we start a line at the highest price point of what I am calling the end of Wave 1 in May 2006 and extend it across the high point of Wave 3 in February 2007, we can see that the S&P 500 rallied right up to test this line when it made its highs of last week. We have backed off of that resistance for now, but I expect that this trend-line will continue to serve as significant resistance over the next few weeks

We can draw a similar line across the lows of 1363.98 set on March 14 and the 1434.01 set on April 12. If we extend this line up, we can see that it reached 1479.52 on Tuesday, May 1. The S&P 500 reached a low of 1476.70, but could not hold it. We might assume that this trendline offered some support to the downward movement seen on this day. If you are curious, this same support line will be at 1483.03 on Wednesday. We will see if this support holds for a second day...