Breakout or Bull Trap? A Quick Plan for the SP500 and Dow Now

May 18, 2015: 10:12 AM CST

Right now we’re playing the “Will it really break out or is this just another Bull Trap?” game with our trades and analysis.

Let’s step inside the market quickly to view what’s going on underneath the new price highs.

Here’s this morning’s S&P 500 futures (@ES) intraday chart at the highs:

We’re seeing the @ES Futures (e-mini S&P 500) trade above the 2,115 breakout resistance high.

However, Momentum and Internals – shown with Breadth – are making lower highs (a divergence) while NYSE Breadth is actually negative 745 (745 more stocks are negative right now than are positive on the day).

This non-confirmation suggests another Bull Trap and failure outcome as more likely than the alternate thesis which would be a short-squeeze breakout and possible “melt-up” rally in the stock market (similar to February 2015).

For planning, we’ll be

  • bullish/neutral above 2,115 (possible “melt-up” or “collapse” of the market to the upside… a bullish breakout in simpler terms)
  • completely neutral between 2,105 and 2,115 (note the trendlines)
  • and bearish to play another sell-swing lower (toward 2,080 at least) if under 2,105 and 2,000.

Here’s the similar picture and planning levels in the Dow Jones (@YM futures):

The Dow stair-stepped its way higher above the 18,1000 prior resistance level.

It too trades at new price highs while internals and momentum are making lower highs in a lengthy divergence.

The implications are the same and the key planning levels right now are the following:

  • Bullish above 18,200 for possible melt-up
  • Neutral between the 18,100 and 18,200 current pivots
  • Bearish for a Trap and sell-swing lower if under 18,100 and 18,050 (and of course 18,000).

Use caution and follow price as the ultimate guide to how you should be trading the market right now.

If we have a ‘melt-up’ scenario (bullish breakout), don’t be upset and blinded by all the bearish arguments that you miss the move (or worse, hold stubbornly short and lose a lot of money to the breakout)

Price is king – always has been and always will be.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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4 Comments

4 Responses to “Breakout or Bull Trap? A Quick Plan for the SP500 and Dow Now”

  1. Today's Strongest and Weakest Dow Stocks Right Now May 18 | Afraid to Trade.com Blog Says:

    […] and Weakest Dow Stocks Right Now May 18 May 18, 2015: 11:24 AM CST With the market tilting toward the “Breakout” or “Melt-Up” outcome I highlighted in this morning&#82… let’s dig a little deeper to find which stocks are participating with the bullish money flow […]

  2. Melt Up Market Update and Diverse Stock Scan May 18 | Afraid to Trade.com Blog Says:

    […] I highlighted in this morning’s post, Breadth was NOT very strong in the morning […]

  3. Still Planning a Breakout or Reversal in the SP500 Wedge | Afraid to Trade.com Blog Says:

    […] “Breakout or Bull Trap?  Planning the S&P 500 Right Now (still planning)” […]

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