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S&P 500: Market Conditions Ripe for a Decline, Price Confirmation Needed

S&P 500: Market Conditions Ripe for a Decline, Price Confirmation Needed

2016-07-22 12:42:00
Paul Robinson, Strategist
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What’s inside:

  • Market conditions remain ripe for a decline, but…
  • Price action needs to validate these conditions first
  • Support and resistance levels outlined

Yesterday, we discussed some factors which suggest the market is due for a pullback at the least: high level of complacency, signs of waning breadth, and the market’s unkind treatment of buyers who enter after achieving new record highs. For details, check out yesterday’s commentary.

So conditions are set for a decline, right? But it doesn’t mean anything until price action validates those conditions. At the present moment there are no signs of sellers stepping in aggressively. Yesterday, we saw sellers come in at one point, but a late day rebound made it nothing more than a very modest day down. It could be the beginning, but there is support below which needs to be cleared before we can think about gaining traction from the short-side.

The short-term, hourly chart shows us nothing more than sideways chop between roughly 2155 and 2176. Until the lower bound at 2155 can be undercut then the market will remain neutral to positive. A break below 2155 will open the door up for a move towards minor support at 2146, then the old record high at 2137, and below there the important pre-EU referendum high at 2127. Resistance is fairly steadfast at this time in the 2174/76 vicinity.

S&P 500: Market Conditions Ripe for a Decline, Price Confirmation Needed

For now, to reiterate, market conditions are set for a decline, but until price action moves in line with these conditions then our interest in shorts remains contained. For those who may be holding onto a long position, the short-term line in the sand is 2155. A breakout above 2176 at this time will likely have a difficult time garnering much interest.

Find out the #1 mistake traders make in our free trading guide, “Traits of Successful Traders”.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

You can email him at instructor@dailyfx.com with any questions or comments.

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

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