April 17 Triple Index Checkup on Sudden Shift in Market Structure

Apr 17, 2013: 3:43 PM CST

Let’s take a quick check of our ongoing view of Market Structure, which we last updated in our April 10 “Interesting Breakout Structure” update.  We can now see the resolution of the “interesting” situation that developed recently.

We’ll start with the @ES Futures (SP500 Index):

In the prior update, we viewed the market pushing into the upper trendline mid-April and we see a ‘trap’ breakout on clear negative divergences set the stage for the recent sell-off or decline back to the initial target support area just under 1,540 (today’s session low).

I also added a short-term Fibonacci Retracement zone that aligns with the 1,540 level (1,536 to be exact) – it’s the 50% Retracement or ‘half-way’ level of the rally from March to present.

In terms of game-planning purposes, if this level is to hold (buyers step back in), then the critical zone remains 1,540 for yet another inflection or swing higher.

However, a breakdown under the 50% Fibonacci Level and horizontal support line into 1,536 would suggest a potential ‘breakdown’ play toward the next key level of confluence support into 1,520 (61.8% Fibonacci Level and the highlighted region from the prior swing highs).

Also, a breakdown under the present 1,536 lows would reverse short-term structure into an official downtrend.

Believe it or not, in terms of Market Structure (categorizing the progression of swing highs and swing lows), short-term structure still remains in an uptrend (though on the edge of reversal).

The most recent down-swing merely retraced almost 100% of the prior or immediate upswing and thus did not push to a new swing low – at least not yet.  That’s why 1,536 will remain the focal point in terms of swing structure (definitions).

The chart is similar in the Dow Jones Industrial Average:

I purposely omitted the Fibonacci Retracement Levels to highlight the “Open Air” or space lower in the event of a reversal in structure (which would take place under the 14,430 then 14,400).

An early warning sign of potential future reversal would occur on the break of the rising short-term trendline that connected today’s swing low at 14,560.

Using the same logic as the powerful swing-rally (one single swing) in the SP500, it would take a breakdown under the prior swing low near 14,400 to reverse the short-term structure.

A simple downside projection target would be 14,000 (a logical “Round Number” and prior resistance line through February) in the event that price broke under the 14,400 level and thus reversed short term structure.

Notice also the pervasive negative momentum divergences that have undercut the rally throughout March (the highest momentum spike was on the breakout on April 5th – from there each new peak in momentum has been lower, despite numerous new peaks higher in price).

Finally, we can compare the SP500 and Dow Jones with the NASDAQ Structure:

The NASDAQ has seen relative weakness compared to the Dow and SP500, as the NASDAQ currently plays off the support level near 3,200 from its horizontal resistance from late February/early March (the Dow and SP500 are above their respective similar levels).

In the event that buyers fail to step in and support structure (preserve the uptrend) into the 3,200 level, the next confluence projection target would be the 3,130 level which is the current intersection of a short-term trendline and a multiple-swing support level from February and March.

Keep focused on the 3,180 to 3,200 support pocket for clarification in structure (and thus short-term game-planning and targets).

In fact, the current supply/demand battle at these known inflection levels will determine short-term trading strategies and trade management.

I’ll continue to update changes in structure on the open blog but also feel free to follow along with daily commentary and detailed analysis each evening by joining our membership services for daily or weekly commentary, education, and timely analysis.

Corey Rosenbloom, CMT
Afraid to Trade.com

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  1. Quick Retracement Check on Structure and Levels in SP500 and NASDAQ | Afraid to Trade.com Blog Says:

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