Blue Channel

The S&P 500 received a major boost from Fed Chair Yellen at the Economic Club of New York today. The suggestion that the Fed is in no hurry to raise rates sent the index significantly higher, closing the day within the top-most segment of a major downward trending channel, the blue channel on the 2 hour chart below. The range is pretty tight and falling, but currently encompasses the span roughly the 2054-2072.

S&P 500, 2 hour bars

S&P 500, 2 hour bars

The S&P has been in this channel a couple of times before, most notably on November 3rd and December 2nd of 2015. Both times, the market failed to progress and gave traders a good entry for a near term short opportunity, as we can see on the daily chart below.

S&P 500, daily bars

S&P 500, daily bars

However, the index returns to the upper end of this declining channel this time capping off a very strong and consistently trending run off of the February lows, and it remains to be seen whether momentum will carry the S&P straight through resistance and on to the all time highs. For any traders out there inclined to take the short side of this market, the best point of entry will likely follow a) a failure to break above the upper channel bound at 2072 AND b) a break back BELOW the lower channel bound at 2054. Without either of those price confirmations, the short side looks fraught, to say the least.

Should the S&P hold above the levels breached today, we could very well be opening up a clear path back to the all time highs and above, a prospect nearly unthinkable just six short weeks ago. But the possibility is there, and its real. We’re at a point in price and time where it does not pay to give the market the benefit of any doubt or take any view for granted. This is a point where careless positioning and poor risk management will likely cost investors quite a bit.

Happy investing, and good luck out there.

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