What’s inside:
- Support in the S&P 500 held in low 2040s, again
- Change in character and trend structure off the table for now, but H&S formation still a possibility
- Diminishing momentum carving out rising channel
Support in low 2040s holds, again
Yesterday, the S&P 500 started the early day session trading down into support around 2042/43, which we deemed important in order to maintain the positive trend structure of higher highs and higher lows. Indeed, the market held onto the low 2040s for a third time in four sessions, further cementing its importance.
Change in character and trend not yet present
From yesterday’s piece:“The next steps the market takes will be important ones in the short-term as all pullbacks to date since the Feb 11 low have been either shallow and/or lasting only a couple of days. If buyers don’t step in here quickly then it will be the first sign of market participants showing a lack of ownership on weakness…”
With support holding the market quickly found buyers, and indeed continued its trend of narrow pullbacks only lasting a couple of days. So far.
The change in character we believed to be just upon us has not yet shown itself. Yesterday, we mentioned the possibility of a ‘head-and-shoulders’ pattern coming to fruition on a rally from support. The S&P could be furthering this possibility today if the turn lower maintains, forming the 'right shoulder'. But we will need to wait for further confirmation first. (Remember: these patterns are not validated until the ‘neck-line’ is broken. In this case the 2042 support level.) If the H&S formation is to play out, then the market should roll over towards the neckline very soon. Today or tomorrow-type soon.
Diminishing momentum carving out rising channnel
The S&P is trading just beneath the critical zone of resistance from 2080 to 2100+, with buyers continuing to step in on each dip. Momentum is not particular strong, though. For example, the low yesterday was roughly the same price the S&P traded at nearly three weeks prior. The diminishing momentum has carved out rising parallels from which traders can use to help shape their trading plans.
A decline back towards the lower line (~2050 at this time) offers a point of entry for those looking to establish a long position, with the low 2040s as the last line of defense for longs. If a lower high forms from Monday’s high (2079), a clean break below 2042 on an hourly closing bar basis would put the H&S into full-swing, and thus giving the shorts strong reason to press on the gas pedal.
On a further advance the Monday peak (2079) and top-side parallel will act as our resistance points of interest. The top-side parallel around 2090 also coincides with a major trend-line off the 2015 peak, adding additional importance and a more meaningful ceiling than the one near 2080. Our interest for establishing shorts on a move into the 2090 region will be piqued. A broadening top could come into play on a move to 2090, more on that if it becomes relevant.
*In either direction, hold times at this juncture have been reduced reduced to a couple of days or less, usually less.
S&P 500 Daily/Hourly
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX, or email him directly at instructor@dailyfx.com.
