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S&P 500 Technical Outlook: Narrow Channel, Gap in Focus

S&P 500 Technical Outlook: Narrow Channel, Gap in Focus

What’s inside:

  • S&P 500 starts week at trend-line
  • If trend support breaks look for gap fill down to 2363
  • A little consolidation here may offer new long entries, shorts still off the table until price action turns

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Last Wednesday, the market rallied with force following President Trump’s address to Congress on Tuesday night, and then the following day saw some of those gains retraced from the underside of the November trend-line. By Friday the minor decline put the S&P 500 on the trend-line extending higher from the 2/8 pivot. It’s not imperative that the line holds to keep the market moving higher, but a break could see the market fill the Wednesday gap down to 2363. A move below the gap would bring 2353 and the Feb ’16 trend-line into focus.

If the S&P can hold the sharply rising trend-line, then the narrow channel higher points to further gains this week; even a quick, but brief early week drop into before mentioned support may help the trend reassert intself for later week gains. On a flight higher, resistance will come in quickly at the 3/1 high of 2401 along with another test of the November trend-line. If the market is to continue moving higher, a small period of consolidation here would do the S&P some good, and allow for a better risk/reward set-up than what we’ve seen lately. For the most part, the only real strategy has been to buy into a rapidly rising market with questionable risk/reward.

On the short-side, as we’ve continued to say (outside of very short-term maneuvers, i.e. day-trades), there is little to lean on. The trend is strong, support is close at hand – a hard combination to fight. We want to wait for the chart to tilt lower and show a change in character before moving to the sell-side of the ledger. The market may be nearing that point given how far it has run since the November low, but, again, we’ll choose to be patient in waiting for the market to provide signaling it wants to decline before taking stabs from the short-side.

S&P 500: Daily

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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.