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S&P 500 Technical Outlook: Back to the High or Lower High?

S&P 500 Technical Outlook: Back to the High or Lower High?

Paul Robinson, Strategist

S&P 500 Highlights:

  • Market sprinting higher following last Friday’s key reversal from the 200-day
  • Back to the high or lower high, is the question; should soon have an answer
  • Tactical considerations highlighted for longs & shorts

To view the longer-term technical and fundamental outlook for the S&P 500, or to see our top trade ideas for 2018, check out the DailyFX Trading Guides.

Heading into the week, the outlook for the S&P 500 and global stock markets as a whole looked positive on the heels of a strong turnabout in the U.S. on Friday. The reversal conveniently began from a tag of the 200-day MA.

Now that we’ve seen a strong bounce develop, the question is – is this just a recovery bounce before another leg lower, or can the market work its way back to the record high? The answer shouldn’t take relatively long to reveal itself as the market has already taken back more than half the sell-off from the Friday low.

We are arriving at the point where if the lower-high scenario is to unfold we should soon begin seeing upward momentum stall. However, if stalling momentum (if it does) doesn’t lead to a sharp break, and the advance continues much further from here then a new high becomes the more probable scenario. So, right now we are in a bit of limbo given where we are, but clarity may be just on the horizon.

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S&P 500 Daily Chart

S&P 500 daily price chart

From a tactical standpoint, the key-reversal off the 200-day offered a good signal for those looking to get long, and if one has solid pricing in their position it may be worth hanging out to see if the rally can’t continue. Fresh longs, though, at this juncture don’t look to hold the best risk/reward. As far as shorts are concerned, if a major lower high is to develop there will be time to position one’s self accordingly. In any event, volatility looks like its back, and for general trading that is a good thing.

If you’d like to listen in on live analysis pertaining to global equity indices (and commodities), you can join me every Tuesday at 10 GMT time for my technical insights.

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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.