Nearing Resistance

On Monday, the S&P 500 broke back out above its recent channel resistance, and has now begun to treat it as new support, almost as if we’ve jumped up into a higher parallel track. We’ll see if the pattern holds; this band resistance-turned-support currently falls around 2067.50. After a positive US GDP read this morning, showing annualized 3rd quarter growth of 3.9%, it looks like this tentative breakout will hold.

S&P 500, 5 minute bars

S&P 500, 5 minute bars

Stepping back a bit, though, its clear on both the 5 minute and 30 minute charts that multi-year resistance (the orange line on the top of the charts), stretching back to the 2010 tops, looms menacingly overhead. I won’t go into too much depth about it now, since we’ll have cause to talk about it in coming days and weeks. No doubt, a retest of this level is a major event, and will yield plenty of insight into how the market will proceed in the near future.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Looking at the daily chart, we can see the S&P tested this level back in early July, pulled back, traded sideways for a week or so, and promptly retreated. This subsequent selloff took the index very nearly back to the 125 day moving average (a level which has nearly always provided a great buying opportunity, October of this year not withstanding), from which we bounced back.

S&P 500, daily bars

S&P 500, daily bars

The index has yet to retest this level again after July. The big question at this point though is if and when we do retest it, do we get a breakout? The long term rising wedge we’ve moved in since the 2009 lows (represented by the red and orange upward sloping lines on the daily chart) gets narrower and narrower all the time, and a break from this pattern is inevitable at some point. We nearly broke down in October, but long term support held up well, as we can see on the daily. So, if not a break down, perhaps a break out? We won’t know until it happens, and a continuation within this range for the time being is just as likely, frankly, as a break out or break down.

So we’re left to watch and wait. If we fail to get a breakout, it would be a cause to take a cautious stance with your positions. We’ve seen the market fail at this level many times before. A breakout would take us into territory that remains uncharted territory post-financial crisis. It would be an exciting but daunting development.

In the meantime, we’ll trade the tape as it comes. Good luck out there.

 

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