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S&P 500: Clears Multiple Short-term Hurdles, Top-side Levels Come into View

S&P 500: Clears Multiple Short-term Hurdles, Top-side Levels Come into View

2016-05-25 09:42:00
Paul Robinson, Strategist

What’s inside:

  • S&P 500 breaks above several key short-term technical levels, tilts chart higher
  • Broader bull-flag breakout in play, but still remain cautious as longer-term resistance zone already at hand
  • For now, giving the breakout the benefit of the doubt, short-term chart in focus for trade set-ups

The market’s full-steam ahead rally yesterday, admittedly, was a bit of a surprise on this end. The move higher pushed the S&P 500 (FXCM: SPX500) above two angles of resistance running off the 4/20 and 5/10 peaks. Horizontal resistance at 2072 was also cleared.

In yesterday’s piece we asked whether the defunct H&S formation was now carving out a bearish descending wedge, bull-flag, or was going to lead to continued choppy trading. The descending channel off the 4/20 high, which is now looking like it was a bull-flag configuration, was our short-term guide for potential shorts on a rejection at the upper parallel. That we did not see, as it cleared with relative ease.

It still remains tricky as we head back into the thick of longer-term resistance levels. How the market responds upon test along the way will dictate whether we look to be buyers on dips or eventually turn into sellers once again. The fact the bull-flag breakout is coming with critical overhead resistance just ahead is not ideal. It is much more preferable to see a breakout from a technical pattern without suddenly challenging key levels. This makes for hesitancy in jumping aboard the bull-train.

This brings up the third alternate scenario mentioned – more continued chop. If the market fails to garner momentum soon to the upside or fails strongly upon one of the tests at upper levels, then the possibility increases of seeing the market carve out a broad horizontal trading range between ~2025 and 2100+.

For now, we will give the momentum seen in recent days the benefit of the doubt for our short-term trades should we not see the rally quickly fail. The 2072 level will be watched as support along with the back-side of the trend-line off the 4/20 peak. Below there, the rising trend-line off the 5/19 low and horizontal support surrounding 2060 will be keyed in on. Resistance is currently being challenged around 2085. Beyond there we look to the 2095/16 zone, which consistsof the 2015 record high trend-line and prior peaks.

SPX500 Daily/Hourly

S&P 500: Clears Multiple Short-term Hurdles, Top-side Levels Come into View

Start improving your trading today, 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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