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S&P 500 - Swings Offering Trades, 'Shape-shifting' Continues

S&P 500 - Swings Offering Trades, 'Shape-shifting' Continues

2016-04-11 11:07:00
Paul Robinson, Currency Strategist
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What’s inside:

  • Market not offering up swing trades, it’s a ‘hit-and-run’ market for now
  • Shapes, shapes, and more shapes
  • Continuing to lean short, 2040 holds the key

Market not offering up swing trades, it’s a ‘hit-and-run’ market

On Friday, the S&P 500 traded back inside the triggered H&S formation, which given the swings since Thursday is not really looking like an H&S anymore. The once clean pattern is quickly ‘shape-shifting’ into other configurations. We have been noting that the current swings in the market aren’t offering up the type of set-ups which present good multi-day holds, but are still tradeable with 1 to 2 days in mind. You could be holding a long or a short position from two weeks ago and either position would be about equally right or wrong in terms of P&L. It’s a ‘hit-and-run’ type of market right now.

On Friday, shortly into the US session the S&P found resistance at the upper parallel at 2061, offering up a solid spot to initiate a short position before shoving lower and testing a critical swing point carved out in the low 2040s. This area just above 2040 counted as our ‘neck-line’ of the H&S topping pattern we were previously honed in on. It’s an important area given the number of inflection points seen since the beginning of the month; counting Friday afternoon there have been three more attempts to break, making six total attempts since April 1 which have failed to lead to down-side momentum. The lone exception was a break on Thursday, but that was quickly reversed.

Shapes, shapes, and more shapes

If you take out the Thursday dip beneath 2040 you have a ‘descending wedge’ developing. We also have a descending channel in place as long as the upper parallel (top of ‘wedge’) continues to act as resistance. With either configuration, the bottom-line at this time is lower highs continue to form, which should be bearish in the short-term.

S&P 500 Hourly

S&P 500 - Swings Offering Trades, 'Shape-shifting' Continues

Continuing to lean short, 2040 holds the key

We suspect on another break below 2040 the market is unlikely to bounce back above any time real soon given the developing down-trend off the April 4 high is becoming increasingly visible and the numerous attempts to hold 2040. Further weakness below noted support brings the Thursday low at 2033 into focus, then the lower parallel and horizontal price support around 2028, 2021ish, then the major zone of support between 1990 and 2010.

What will undermine the bearish bias is pretty much the obvious – continued holding of 2040 and subsequent break above the upper parallel which currently comes in under 2060 (and declining). A break above the previously identified ‘right shoulder’ at 2069 takes the current topping structure off the table and likely paves the way to 2079 (4/4 high) and higher.

As we said on Friday, the possibility of a ‘bull-flag’/ channel still exists, but we will need to see the S&P move sideways to down a bit more before carving out a better looking pattern. So, even if the next swing of significance is higher from a ‘bull-flag’ formation, the near-term picture is still tilted more bearish than bullish, especially with the sequence of lower highs and lows in place. Even with a developed bull-flag, the proximity to major overhead resistance between ~2080/2115 gives pause to the notion of a buying a bull-flag breakout. More on this later if it becomes relevant.

Daily

S&P 500 - Swings Offering Trades, 'Shape-shifting' Continues

For now, we will continue to operate within the confines of the channel off the April 4 high with full respect to the importance of 2040, and also continue to ride our 'one-day at a time' mentality. Good trades are there, just need to play the levels and keep hold time times short.

For tips on how to take your trading to the next level, check out our guide – “Traits of Successful Traders”.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at instructor@dailyfx.com.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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