COMP: the index that thinks it’s a beanstalk. It’s heavily weighted toward stocks which have done particularly well in the face of the global pandemic: AAPL, MSFT, AMZN, FB and GOOGL. So, a reversal at current levels would be a big deal.

Investors might wish to know, then, that it just bumped up against a chart feature that suggests a reversal.COMP did a pretty good job of paying attention to channels over the years — at least until 2018. As we noted in our March 2018 update {see: Update on COMP], it had just arrived at our 7619.21 target – the top of a long-term channel and an important Fibonacci extension level. Our comments at the time:

…with a FOMC rate hike due out tomorrow and more on the way, the range of possible outcomes is broad — from new highs to the next lower Fib level at 6227.06.

It reversed as forecast, but pushed back above 7619 in June. The breakout was strong enough, but it fell back below 7619 in October, tagged our 6227 target, then spent almost a year trying to break out once and for all.By February 2020, it had popped nearly 30% above 7619. Then came the pandemic. The 33% plunge caught many true believers by surprise – though there were plenty of warning signs in both the index and its major components.

The recovery was even more spectacular, with COMP gaining 68% since March 23. Given the amount of money that’s been thrown at the market, investors could be forgiven for believing the rally has plenty of room to go.

The charts suggest otherwise.

continued for members…When COMP broke out of the rising purple channel, it continued constructing the much steeper rising white channel.  Since then, the white channel has done a very good job of indicating turning points – though most of the reversals have come at the channel’s top.

As we noted last week, its superstar heavy weights have been going sideways. This was reason enough to check in on the index itself – which reached the top of the rising white channel two sessions ago.

Since COMP pushed above the 2.24 at 10,122 – the next higher Fib level – that becomes the most important support.  A drop back to it around Aug 27 would intersect nicely with the rising white channel .786 line and very nearly backtest the former 9838 high.Of course, it would have to drop through the SMA10 (testing it now) and SMA20 at 10706 to get there, but it’s looking pretty good so far. If 9838 doesn’t hold, then we can start looking at the SMA200 – currently at 9201 – and the white channel midline around 8655. If, on the other hand, it breaks above current levels, the 2.618 extension is waiting up at 11,643.40 – almost 5% above recent highs. Stay tuned.