Inflection Point

Its becoming increasingly clear over the past couple of days that the S&P 500 is acknowledging through price behavior the fact that the prior pace of gains was unsustainable, and has begun adjusting itself into a new trend path, a more modestly upward sloping one, but an upward sloping one nonetheless. For now, at least. Great, that’s a healthy development.

What we can expect over the coming days and weeks, though, is the process of testing the new trend channel, and its limits, a process in which volatility is not only expected, it is essential. Not necessarily earth shattering volatility, but still an increase.

S&P 500, 3 minute bars

S&P 500, 3 minute bars

On the 3 minute chart, the “downshift” we’ve seen over the past few days is now more clearly evident, as the market moved sideways out of the prior upward channel (which qualifies as a channel “break”, but break is hardily the right word in this case), and is currently feeling its way into another. Its a nascent channel, and thus important levels associated with it are as yet difficult to discern, but at least 3 levels immediately ┬ájump out, falling in a range currently from about 2032-2043.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

On the 30 minute chart, we can see that this is not the first time we’ve made this type of downward inflection since the October low. The first such shift occurred around October 22nd, and the resulting channel provided some great trading setups and significant follow though. That is exactly what I’m looking for from the newly forming structure, though only time will tell if we actually see it.

S&P 500, daily bars

S&P 500, daily bars

Looking at the daily chart, its clear the 2000 level is still in play on a pullback below the 2021 level. Most major support zones currently fall well below that, and aren’t likely to come into play for some time, though that can change quickly. In the event that it does, keep an eye on the 50 day around 1974.

If, as is still likely, we continue to trade within the bounds of the newly forming trend, there is plenty of room for the market to run higher before reaching longer term resistance (the upper green line on the daily chart), currently above 2070. If and when we get there, it could easily have moved above 2100 as these levels are always moving. I’m not making a call that we move there in a straight line from here, I’m just saying that we are still significantly below longer term resistance levels, so a major rally is not out of the question.

In the meantime, keep your eyes on the developing channel for near term trading levels, and be ready to take profits should we get a break below the 2021 level. Good luck out there.

 

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