For readers who haven’t used pivot levels before, I recommend checking out my crash course on pivot analysis here, or an abbreviated version at the bottom of this article.
On January 1, 2021, I conducted my annual analysis of yearly pivot levels, calculating levels of pivot support and resistance for 2021. Using StockCharts.com, when pivots are added to a weekly chart, it produces a chart with yearly pivot levels. The pivot levels appear in the upper left-hand corner, and I have added them as an insert on the chart below. The pivot is a solid line, while dotted lines are used for the support and resistance levels.
The Spyder Trust (SPY) in March 2020 dropped just below the 2020 yearly S2 level at $216.62, with a low of $215.52 for the week ending March 21 (point 1). It was not until Friday, May 23, 2020 that SPY closed at $300.50, which was back above the 2020 yearly pivot at $292.64. SPY tested the 2020 R2 in late November and then exceeded it in December. In 2021, SPY started the year well above the yearly pivot of $319.26 and closed at $426.16 the week ending June 26, which hit the yearly R1 at $424.40. SPY peaked on July 16, with a high of $437.92.
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The Invesco QQQ Trust (QQQ) opened 2021 at $314.25, which was well above the yearly pivot at $263.54. On July 14, the QQQ had a high of $365.49 (point 1), which was just above the yearly R1 at $363.37.
Traditional chart analysis can often support the pivot analysis. The chart resistance that connects the September and the February high (line a) was in the $370 area in July 2021, and still forms a trading range with the uptrend (line b).
The SPDR Dow Jones Industrials (DIA) moved to a high of $350.69 on July 14, which was above the yearly R1 at $345.09. The three-month low for DIA is at $332.48, which is still well above the yearly pivot at $261.63.
The iShares Russell 2000 (IWM) had a March high at $233.36 (point 1) that was above the yearly R1 at $232.59. IWM has not made a new high since March. The January low was $204.14 and the low so far this week has been $209.05 as the chart uptrend (line 2) has been broken.
In my January analysis, I commented that “The strong rally into the year-end close suggests that the markets are ready to move higher as we start the New Year. In terms of a potential correction, it would take time and some serious selling before these markets could fall to their yearly pivots.”
This is even more true now, as SPY closed on 7/21 over 17% above its yearly pivot, and because each of these ETFs is still above its yearly pivot, the overall trend is still positive. My monthly advance/decline analysis shows no signs of a major top or bearish divergences that warned of the bear market in 2008. Even though a drop to the yearly pivot levels seems impossible or at least unlikely, that is what many also thought in 2020.
Using Pivot Analysis
Basic pivot analysis evaluates a stock, market average, or ETF as positive if it is trading above its pivot level, which is determined using the high, low, and close from the previous period. In a positive-trending market, the next level to watch is the first resistance level above the pivot (R1). Conversely, if a market is below its pivot, then the focus should be on the first support level below the pivot (S1).
This type of analysis often identifies levels of support and resistance that are not identified with other methods of analysis. This is especially true when you are looking at yearly pivot levels. In my regular articles, I often refer to the monthly pivot levels. The basic formulas are well-known, and pivot calculators are readily available on the Internet. But for those interested in calculating the important pivot levels themselves, they are as follows:
If a market closes above the monthly pivot, then the trend is positive, and closing below the pivot is negative. In a positive market, you look for prices to pause, or maybe even reverse, at the first pivot resistance level (R1). If that level is exceeded, then the second resistance level (R2) is the next level to watch. Conversely, when a market drops below the monthly pivot, then the first downside target is the first pivot support (S1), and the second target is the second support level (S2). Yearly pivots are an even stronger determinant of trend.