S&P 500 Technical Analysis: Technically Beautiful
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- S&P 500 Technical Strategy: Flat
- S&P 500 put in a top-side breakout of the symmetrical wedge discussed on Tuesday.
- Extreme volatility around FOMC opens the door for potential bullish or bearish positions based on next week’s price action.
It’s been a climactic week for US Stocks, with the highlight being the FOMC announcement yesterday that provided a series of significant moves in the S&P 500. And if ever there were an example of technical analysis playing a key role in a market’s dynamics, the past two trading days have provided numerous iterations of such a theme. On Tuesday, we discussed the symmetrical wedge formation that had defined price action in the S&P. As mentioned in the article, top-side breaks of 1,995-2,000 could open the door for long positions up to 2,021 – which is the 61.8% retracement of the most recent ‘major move,’ taking the 2,137 high to the ‘panic lows’ of August 24th. This is exactly where the S&P topped-out on Thursday before Janet Yellen began the press conference that created precipitous selling across equity markets.
The selling ran into Friday and brought prices down through multiple support levels. There could be a setup on either side depending on the trader’s bias or point-of-view. On the bull side, there is a rising trend-line that, as of yet, hasn’t been broken by a daily close, and this is the same support trend-line that provided the under-side of the symmetrical wedge discussed on Tuesday. On the short-side thesis, a recent resistance inflection combined with an outsized sell-off that began on Thursday afternoon and snuffed out all of the S&P’s gains for the week could be the prelude to another risk-aversion move that sees stocks swan-dive down to new support levels.
For short positions, traders don’t have the luxury of many nearby resistance levels for stop placement, so either profit targets will need to be further away to justify this additional risk, or more short-term levels should be used to place together stops. The most recent swing-high at 2,021.1 would be the most attractive level for stop placement, but traders would need an approximate 160 handle target to institute a 1-to-2 risk-to-reward ratio. This would put price targets in the ~1,880 range, and if price moves that far, traders may want to institute a scale-out type of logic in the event that even lower-lows may print at 1,833.50 (the 8/24 ‘panic low’) or 1,791 (23.6% retracement of the ‘big picture’ move taking the financial collapse low to the May all-time highs).
The more attractive risk-reward ratio may currently be seen on the long side of the S&P. With another test of trend-line support (shown in the below chart in red) combined with an inflection off of the 38.2% Fibonacci retracement of the Fibonacci retracement mentioned earlier at 1,949.2, buyers could look at stops below this support zone to find rather attractive risk-reward ratios using previously defined resistance. Targets could be set at 1,985 (50% retracement of the most recent major move), 2,000 (psychological level), and 2,021 (61.8% of the most recent major move, and the most recent price action swing-high). This could allow for risk-reward ratios ranging from 1-to-2 all the way up to 1-to-6 by trading on the assumption of trend resumption.