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S&P 500: New Record Highs, Another Head Fake?

S&P 500: New Record Highs, Another Head Fake?

2016-08-08 12:29:00
Paul Robinson, Strategist
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What’s inside:

  • Big NFP print pushes the S&P 500 back above trading range
  • Breakout isn’t all that exciting as isn’t the trading environment, either
  • In capital preservation mode until better price action, but fresh breakout could turn out to be another failure

Prior to Friday’s much better than expected NFP figure (+255k vs. 180k expected), the S&P 500 began trading from inside the recent range it first broke above, then below, only to finally break back above again following the big jobs print.

The narrow range prior to the two false breakouts (maybe a 3rd on its way?) was historically tight, and tight ranges are known for false breaks. We recognized the first false breakout (higher on 8/1), but then hung onto the break lower as the ‘real’ break based on factors which supported a decline. That turned out to be a wrong conclusion, obviously, as we are now treading back into record territory.

It is a tough environment out there right now. It’s August, and without a catalyst to spur volatility, a low-volume trading environment where there are seemingly no concerns can be tough to navigate.

Do we trust this breakout? No. But, just because we aren’t jumping up and down for joy over the breakout doesn’t mean we are bearish either. It’s tough to be bearish with nothing substantial in the way of resistance and price action off of resistance which suggests we should be. There is a top-side trend-line running back to the July 14 high which the S&P is trading off of now that could put a lid on the market. Above there, we then have to look to the psychological level of 2200. A break below the 2174/78 zone will confirm we have another head fake on our hands.

S&P 500: New Record Highs, Another Head Fake?

We still believe the markets tendency to trade back below the old record high (2137) not long (within weeks) after moving to new highs, will take hold. But, again, sans a reason for sellers to sell, the market may stay levitated for the foreseeable future as we move through the dog days of summer. However, should we see a sharp turn lower accompanied by heavy selling pressure, then we may be inclined to take a crack from the short-side.

Until price action becomes clearer, though, we will reserve ourselves and stay in capital preservation mode.

Find out what separates winning traders from losing traders in our trading guide, ‘Traits of Successful Traders’.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

You contact him via email at instructor@dailyfx.com with questions or comments.

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

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