What’s inside:
- Impressive rally brings resistance into focus; Dow – ~17660, S&P 500 – ~2055
- Pullback risk high, but likely to be met with buyers
- Tough to trade from either side of the tape right now, patience required
On Friday the market continued to extend its impressive run, bringing the S&P 500 near a level of trend resistance off the pivot high created in early November 2015. The prior degree of trend resistance extending over peaks created in December only proved to be a minor two-day nuisance. At this time there is no reason to believe any down-turn which may unfold will be anything more than a corrective decline before seeing higher prices shortly thereafter. As said last week it is highly unlikely the market will fall from the sky with no warning signs, of which none are currently flashing red just yet.
The market is due for a little pullback and perhaps after the several day march last week (Dow has been up 6 going on 7 days in a row) we will see some early week weakness, but look for the decline to be met with buyers, making it the ‘easier’ trade to be a dip buyer at some point. The trend-line of minor degree in the S&P 500 turns coincides with a major trend-line for the Dow. While the S&P 500 is the more important of the two indices, the Dow may find itself struggling the most here as it contends with a trend-line off the 2015 record highs set in May which passes over two peaks created in the later months of last year. The level is roughly 17660, just shy of a major zone of resistance from 17750 to 18000. The trend-line of minor degree in the S&P comes in around 2055, with the most significant area of resistance not coming until between 2080 and 2100.
S&P 500 Daily: Jul '15 - Present
Dow Daily: May '15 - Present
It is tough to be a buyer up here without first seeing some type of pullback or consolidation, but it is even tougher to be a short-seller with momentum so strong. Trading conditions have tightened up as the trend matures, making it increasingly difficult from both sides of the tape for the short-term-minded trader. With this in mind, one needs to be extra patient and selective when approaching the market in its current state.
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---Written by Paul Robinson, Market Analyst You can follow Paul on Twitter @PaulRobinsonFX, or you can email him directly at instructor@dailyfx.com.
