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SPX Technical Analysis: Testing Bottom-Side Support

SPX Technical Analysis: Testing Bottom-Side Support

James Stanley, Senior Strategist

- SPX Technical Strategy: Flat, conditional short setup identified.

- SPX is currently catching support off of the psychological 2k level, but there are numerous levels below to catch near-term price action.

- A ‘bigger picture’ short setup may be building, but for now, support is holding and traders should treat the S&P as such: supported.

In our last article, we looked at a choppy S&P 500 that didn’t present a clean trend on either side of the market. To be sure, the prior up-trend in the S&P may be enough to invigorate traders to have a top-side bias when we’re in an obviously bias-free (ranging) market, but a heavy calendar of economic data in December combined with a lack of a clear technical setup was enough for many traders to take a back seat.

Since then, we’ve seen a choppy S&P get even choppier. With prices first testing the lower-boundaries of support in the 2,000 neighborhood, only to bounce higher and then move right back. There are reasons for this thing to move higher and reasons for it to move lower but none of those mean much right now, because the S&P is pretty in the same vicinity as where price action has been for the past month.

Now, this doesn’t preclude a ‘big picture’ or longer-term position in the market; it merely means that more chop may be to come in the interim, especially around a holiday-shortened week. In reference to that ‘bigger picture’ position is the potential for a long-term short position should the highs of 2,137 continue to hold. This is the 61.8% extension of the Financial Collapse move, and after a high was set at 2,137 earlier in the year, we’ve seen a series of ‘lower-highs’ come into the market as the Federal Reserve debated rate hikes for much of the year. Rate hikes are a pretty bearish thing for stocks, so when combined, there is rationale for a bearish S&P position going into next year on both a fundamental and technical front. This longer-term view could help a trader construe near-term price action.

Should any of these major support levels become breached, traders can move down to an hourly or 4-hour chart to look for top-side wicks as resistance around old support. The 2,000 level could be extremely opportunistic for this approach, as could the bottom-side Fibonacci levels at 1,985 and 1,949. Traders can then target 1,905 (23.6% Fibonacci retracement), 1,850 (prior price action swing + psych level), and then 1,833.50 (prior low after China’s ‘Black Monday.’)

SPX Technical Analysis: Testing Bottom-Side Support

Created with Marketscope/Trading Station II; prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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