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S&P 500: False Breakdown Puts the Brakes on Shorts

S&P 500: False Breakdown Puts the Brakes on Shorts

What’s inside:

  • The S&P 500 breaks below support, but recovers strongly
  • Puts the ball back in the bulls court, for now
  • Top-side and down-side levels to watch

So there we were yesterday, on the verge of a breakdown …that is until the market reversed course and resulted in the S&P 500 putting in a tail below the Feb 11 trend-line and September lows. Which brings us to a point worth always keeping in mind: Breakdowns or breakouts are not considered valid until the bar in question (daily in this case) closes below support or above resistance. Becoming the tail of a candle is never fun, and more importantly, an avoidable error in execution.

Moving on to today, can the market make good on its reversal day? The first level of resistance comes in at a spot which held as support on four occasions in recent weeks and acted as resistance on Wednesday – that level is 2145. Beyond there a key downward sloping line will come into play about 20 handles higher. A breakout above trend-line resistance would be a good sign that the market has confirmed the downside rejection and ready to pick up momentum to the upside.

But before we get all bulled up, the market can’t dive back lower and take out yesterday’s low and close below the Feb 11 trend-line and Sep low. If it does, then we will be in the bear camp, looking for 2100 or worse.

In the interim between now and any potential breakout/down which may unfold, trading is likely to continue to be sloppy and only leave opportunity for the nimble day-trader. Once lines and levels of influence clearly present themselves on the intra-day time-frame we will be sure to update.

S&P 500: Daily

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Our Q4 forecasts are out for FX, commodities, and equity indices; you can check them out in our free trading guides section of the site.

---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinonFX.

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