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S&P 500: New Highs Hard to Buy, But No Need to Be a Hero, Either

S&P 500: New Highs Hard to Buy, But No Need to Be a Hero, Either

2016-11-22 12:55:00
Paul Robinson, Strategist
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What’s inside:

  • The S&P 500 moves to new record highs, joins other indices
  • Propensity for the market to eventually fail new highs, but no need to be a hero here
  • Holiday week of trading, with Thanksgiving on Thursday

The S&P 500 is playing catch-up with the Dow and Russell 2000, as it finally achieved new record highs yesterday. The Russell 2k (small-caps) has been positive for 12 consecutive sessions, a nearly unprecedented streak, and one expected to end soon. But generally speaking, U.S. stocks are likely to continue to hold a bid for the foreseeable future.

It’s a holiday week in the U.S., with markets closed on Thursday for Thanksgiving. On Wednesday, many market participants will look to leave their desks early and Friday is set up for a ‘nothing-type’ day in terms of volatility and volume. The combination of persistent upward pressure, new highs, and a holiday trading environment make fighting the trend a difficult proposition. No need here to be a hero.

Until we see sharp downward price action telling us there has been a material shift in sentiment, the likely path is to be choppy with an overall upward bias. The trading environment is not likely to be an easy one, but with the right approach by the nimble short-term trader (intra-day to 1-3 days), taking trades off levels with close-at-hand target objectives can still yield positive results. From a swing-trader’s standpoint (days to weeks), it’s difficult to buy into these types of up-moves without first seeing a retracement or a consolidation at the least. Shorting with expectations of a big drop, while always possible, is not the most probable scenario at this time.

We will first look to support in the 2188/2194 area (2194 = old highs), and below there, should we see the first levels fail to hold, the market is likely to find dip buyers in the 2170/82 vicinity. Looking to potential ‘hidden’ resistance at new highs, there lies a trend-line running over peaks during H1, 2015 and the August highs. Right around the 2207 mark at this time.

S&P 500: Daily

S&P 500: New Highs Hard to Buy, But No Need to Be a Hero, Either

Created with Tradingview

Worth noting now that we are at new record highs, is the propensity for the market to punish those who chase the market higher with new longer-term holdings. Since 2013, when the S&P 500 broke above the 2007 peak, nearly every rally to new highs following a meaningful pullback eventually failed within days to a couple of months. It’s a broad range, but the bottom line is; buying record highs might work for a while, but those positions held for an extended period of time eventually sunk back into the red. Entering on dips trumps chasing. Knowing this tendency might get some shorts excited, but it can be an arduous haul before getting the desired result. We will expand more on this at a later time should we see price action suggesting a top may be in.

Daily: 2013-Present

S&P 500: New Highs Hard to Buy, But No Need to Be a Hero, Either

Created with Tradingview

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---Written by Paul Robinson, Market Analyst

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

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