Pause And Reflect

Yesterday, we saw the S&P 500 flashing some weakness early on, but none of it sticking, with the market closing the day little changed. Overall, the technical picture also remains little changed. We’re still in a transitional phase from a rapid pace of appreciation that was clearly unsustainable to a more modest pace of gains, one that leaves investors more vulnerable to event risk and sudden drawdown, despite the broader technical picture remaining decidedly bullish.

With an number of price action clues emerging on a near term basis, we’re left to build a tentative framework with which to put the coming trading days and weeks into context.

S&P 500, 5 minute bars

S&P 500, 5 minute bars

The 5 minute chart reveals a complicated picture. To clarify as best as possible, I’ve used colors for each trend channel range at play; from oldest to newest, orange, green and red. Each is successively more gentle sloping, reflecting the general moderating of the trend from the October lows. Bear in mind, the newer the channel, the less well established it is, and the more tentative the technical significance; only time and price action will further clarify the emerging trend range and bolster whatever technical value it may present.

For now, though, these are, roughly speaking, the primary levels we’re working with; support initially at 2037 followed by 2031, and resistance coming in at 2043 and 2047.

S&P 500, 2 day bars

S&P 500, 2 day bars

Looking at the 2 day chart gives you a sense of the strength of the move off the lows in October. The nine candle consecutive run on green qualifies as one of the most impressive of the past couple years. If the market took a break here, it would be well deserved. Strength tends to beget strength, though, and the inability of the bears to gain any traction on signs of market weakness suggests there’s more upside to come.

Keep an eye out for breaks at critical levels, though. Conditions can always change on a dime, and one should always be ready to take profits when the music stops. Good luck trading out there.

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