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S&P 500: Hard to Buy, Hard to Short

S&P 500: Hard to Buy, Hard to Short

What’s inside:

  • S&P 500 - new highs, new highs
  • Overbought becoming more overbought
  • Hourly chart in focus as guide

Another day, another new record high for the S&P 500 (SPX500). Buying a breakout to a record high sounds like a logical thing to do; but using recent history as our guide, it’s not the best idea unless quickly flipping out longs after buying on dips; take a look at the period from around May 2013 to May 2015 to see what we are talking about. Following nearly every breakout after a meaningful decline, within days to a few weeks at the most, the market retraced below the prior record high. This made breakouts a selling opportunity for longs, but not necessarily a an easy shorting opportunity. We have reached a point of, ‘damned if you do, damned if you don’t’.

SPX500 Daily: Jan '13- Jun '15

We have noted overbought conditions in recent days, but those haven’t mattered. Overbought can become more overbought as oversold can become more oversold. Price action, the ultimate decider, hasn’t been supportive of a decline yet.

We’ve updated the upward sloping channels were watching on two occasions, now make it a third. The S&P 500 at the time of this writing is trading above the upper parallel of a newly angled channel, of which the upper threshold runs back to the very beginning of the month. We'll keep an eye on how the market trades around this line in the short-run.

A "material" decline from here would likely bring the S&P down to a point of intersection between the rising trend-line off the June 27 low and the short-term lower parallel. For those looking for dip-trips, as long as the trend-line holds, then the path of least resistance will remain pointed skyward. For those looking to establish short positions, the suggested approach would to only do so with scalps in mind until better reasoning for being short arises; such as a break of trend support and failed attempt to recover.


Start using market sentiment today with the SSI indicator.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

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