What’s inside:
- Numerous reactions off parallel lines increases importance moving forward
- Bullish posturing waning, break of lower parallel should usher in selling
- Clear support and resistance presents points of interest for those on both sides of the tape
On Friday, the S&P 500 sold off to a lower parallel which has sparked a lot of activity at both the upper and lower bounds; more-so at the upper at this time. The repeated reactions around these twin lines makes them all the more important. To see with greater clarity let’s take a look at the 2-hour chart, which presents us with a clean look at the scope of interest surrounding these lines.
On Friday, we asked the question – “bull flag or failing from resistance?” The line-in-the-sand we noted was 2065, and while we did decline below it on an intra-day basis, the market managed to recover and close the day and week just slightly above. As we will soon see, this level is now beginning to act as key player on the short-term time-frame. The probability for a bull flag developing has effectively diminished to zero, while the possibility of seeing a further sell-off grows. A break below the lower ascending parallel will be our cue to look to support in the 2030/20s as the next likely stop.
Referring back to the 2-hour chart; at the time of this writing the SPX is attempting to push above resistance around 2066, which could open up the door to another very active area surrounding 2077. Since April 4, when the level began its relevance, the market has reacted on approximately six other occasions. The most recent came on the last two days of the month where we saw a pause before the Friday drop.
SPX500 2-hour
How traders can use this information: The area around 2066 and 2077, until recaptured, present spots for ‘would-be’ shorts, while the lower parallel in the low to mid-2050s offers a spot for ‘would-be’ longs to enter or shorts to cover. IF the parallel gives way to sellers, then we will shift our broader focus lower in anticipation of a decline into the 2030/20s.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter @PaulRobinsonFX, or email him at instructor@dailyfx.com with any questions, comments, or concerns.
