Tentative Breakout

Is the S&P getting ready to settle back into its old familiar, boring, upwardly mobile self? Not so fast. While we did register a breakout above the 125 day (1946-49) range today, we again saw end of day weakness, with the S&P closing well off the highs, and only a hair above resistance-turned-tentative-support.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

The downward sloping level on the 3 minute chart above originates from the September highs, progressing down the lower highs preceding the big plunge two weeks ago. The break above this “neckline” (for want of a better term) is still tenuous, but for now should be taken at face value.

We may be presented with reason to doubt the conviction behind this move tomorrow morning, and one could argue we’re looking at a head and shoulders pattern that took shape over the course of the day, a bearish formation. However, without evidence to the contrary we should assume the uptrend remains intact. My technical motto is, to paraphrase the great Yogi Berra, the trend is intact until its broken.

S&P 500, daily bars

S&P 500, daily bars

The daily chart illustrates the ambiguity of the breakout well; we have an extended upper wick on today’s candle, and a close just barely above major resistance turned support, 1946-49. We may in coming days see the market hop back and forth across the level as it did earlier this month on the way down. A quick succession of moves up and down across this level should be viewed with suspicion; in this event, any benefit of the doubt you elect to afford the market should be revoked no lower than 1925. There is no shame in taking profits when the market can’t maintain critical levels.

In the event we move directly higher, the 50 day is the next hurdle to cross at 1867  where we could see a hangup. Above this level, we register a true breakout, and a retest of the highs becomes a distinctly probably scenario. In any event, the greater risk is to the upside; I maintain a long bias moving into the weekend, though a cautious one. As always, keep an eye on the major levels at work here, and be ready to take off some exposure if we close below them.

-Will Mogey (Twitter: @wtmogey, StockTwits: @wtmogey)

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