Monthly Archives: April 2016

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Continuing the string of gains off the lows in February, the S&P 500 has finally tagged the 2100 level for the first time since December 2nd. Drilling down to the near term movement, the rallies of the past few trading days has taken the index to the top of its recent rising range. Within this pocket at the top of the channel, the market has generally found a place to cool off before pulling back to consolidate in the pocket at the lower end of the rising channel.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

These points at the extreme edges of the range (within the “pockets”) have provided good entry and exit points for swing trades in the recent past. Beware, though, that these trading ranges develop and break down rapidly, and often with little advance notice, so if playing the levels, be sure to select entry points carefully and apply tight stops. If (really when) the range breaks down, you’ll know pretty quickly that the structure is breaking down, and that its time to get out and re-evaluate.

S&P 500, daily bars

S&P 500, daily bars

Still, the channels often last long enough that they can produce a number of decent trade setups, provided the proper care and planning go into each trade. Be sure to limit drawdown on any trade that goes against you; preservation of capital is EXTREMELY important. Don’t let a small loss turn into a big one.

Good luck out there.

Undeterred

Following the failure of the Doha OPEC meeting to freeze oil production levels, markets initially followed oil lower. However, soon after the open, US markets shook off the bad news and rallied, hitting new post-February highs, extending the strong momentum that carried the market higher all though march. The pace of gains has certainly decreased, yet the S&P 500 continues to move higher in a relatively orderly channel with a well defined rising range evident on the 30 minute chart below.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

With domestic equities breaking out the path is mostly clear for a re-test of the all time highs. However, a straight path higher is rarely the likely one, and there are plenty of newsy items on the horizon that could through up roadblocks. A bumpy road should be expected, though a higher road nonetheless.

S&P 500, daily bars

S&P 500, daily bars

Deceleration

The S&P 500 continues to decelerate after reaching the topmost resistance levels of the downward trending channel in place originating May 2015. Today, the market broke below the two converging support levels: one short term upward trending level and the other a medium term downward trending level. They are light blue and dark blue on the charts, respectively.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

This break is a likely indicator that a significant retracement of recent gains. If recent history is any indication, the most important downside target should selling pressures increase currently falls right around 1975, with a very decent buying point falling just below around 1962. The market has made moves very similar to this three or four times since last October, punctuated by the fall in January.

S&P 500, daily bars

S&P 500, daily bars

With the market weakening, this may be the time to pare back profitable long positions, and prepare for a pullback. That said, should we close the day above the levels I mentioned above, this may be a fake out before the market heads higher. Tops take time, so exercising patience will no doubt pay off. As always, keep an eye on price behavior, and good luck out there.

Live Wire

Markets ended the day substantially lower yesterday, resting on near term uptrend support, and just below a pocket of significant resistance. Today, we’ve managed to bounce off of support back into the pocket (between top two blue lines on 30 minute chart). The charts from yesterday and today are shown for comparison.

S&P 500, 30 minute bars

S&P 500 yesterday at the close, 30 minute bars

S&P 500 today, 30 minute bars

S&P 500 today, 30 minute bars

What this indicates is that the near term move is still adequately supported such that the possibility of an upside breakout is still very much on the table. That said, the market is testing the support to an extent we haven’t seen since the February lows. Furthermore, the rate of gains is decelerating, as can be seen from the near term trendlines on daily chart below. This is completely in keeping with the beginning of a topping pattern, though this is not to say we’ve seen the highs for the move. It could also represent the “pause that refreshes”, setting the stage for renewed upside.

S&P 500, daily bars

S&P 500 at yesterday’s close, daily bars

This is all to say that the market is sitting on a live wire, in a pocket with potential to go either way. For the bears, a break below both the blue and teal trendlines would present a great short trade opportunity. For the bulls, a decisive break above resistance at ~2070 would present a great long trade setup, with a clear threshold for a stop order should we see a false breakout.

Pulling Back

The indices are cooling off from the move originating at the February lows. Price action has been in keeping with the larger downtrend in place from May 2015. Looking closely on the 30 minute chart, we’re on the verge of a break down out of the upper pocket of the downtrend (between the top two blue lines).

S&P 500, 30 minute bars

S&P 500, 30 minute bars

In the near term, should we not get a breakdown, we may at least be looking at a downshift into the teal trend channel. Its too early to say we have a strong sell, or buy for that matter, but the next few days will be critical to identifying the levels that will define trade for the next few weeks.

Groundhog Day

Today, the S&P 500, like a certain groundhog from a certain small town in Pennsylvania who shall remain unnamed, peeked its head out from its burrow underneath resistance and didn’t see its shadow. The S&P climbed right out and closed out the week above resistance, albeit just barely. So, rather than six more weeks of stock market winter, it looks more and more like we’re ready to break out.

S&P 500, 30 minute bars

S&P 500, 30 minute bars

Furthermore, the recent uptrend remains well tested and intact. The jobs report today initially took the S&P down a notch right to uptrend support, but the healthy 200k headline number clearly fit the bill for the “Goldilocks” employment growth on which the market has thrived in recent years. Looking at the 30 minute chart, there is little reason to believe we won’t get more of the same price action for next few days, and possibly few weeks.

S&P 500, daily bars

S&P 500, daily bars

The question now turns to what might present the next obstacle to further gains for the index, or even be a driver of retrenchment, or possibly even a resumption of the downtrend in place from the May 2015 highs.

Have a great weekend, and make sure to check back next week.