Focusing on the Short Term Trading Range in SP500

Jul 23, 2010: 12:18 PM CST

I mentioned yesterday that the broad market equity indexes all face specific resistance overhead – which is still true as of noon on Friday.

Check yesterday’s update for the specific levels to watch on the three US Equity indexes.

However, I wanted to zoom-in not just on the overhead resistance level in the S&P 500, but the lower support level as well – keep in mind that we are officially in a short-term trading range.

Let’s see the levels that on which intraday traders are hyper-focused and the parameters of the range – as well as two traps that frustrated traders recently.

The short-term resistance area in the S&P 500 is of course 1,100, but there is also a critical short-term support area at 1,040.

A failure by buyers to push price to a breakout above 1,100 leads to the expectation of a downward swing to take price lower to test the key support at 1,040.

However, a quick break above 1,100 likely sends the market in “Popped Stops” mode (there are bearish stop-losses above 1,100) to rally at least to test the “Bull Trap” high of 1,130 from mid-June.

The current two-month structure – a trading range – illustrates the frustrating nature of a market in a tight consolidation range, and the insidious traps that confuse short-term traders.

Bulls bought the breakout in mid-June only to see the market collapse back into the range, while bears shorted the breakdown in early July, only to see the market surge back inside the range – both instances resulted in losses for those who participated.

Markets have a lot of economic information to digest this weekend, so unless some major news event occurs to break the price upwards through 1,100, we would expect the market to remain in this two-month range between 1,100 and 1,040.

Corey Rosenbloom, CMT
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3 Responses to “Focusing on the Short Term Trading Range in SP500”

  1. Terlyn12001 Says:

    With the exception of the hump on the daily chart< it has been in this range for about a year now.

  2. Corey Rosenbloom, CMT Says:

    Actually you're right! I tend to focus so much on intraday charts that I sometimes miss the bigger picture – exactly right.

    People are calling this an intermediate term head and shoulders pattern – which it may be – but under technical classifications, it is a sideways trading range or “Line.”

  3. Joey (formerly Balab) Says:

    Hey C-

    Sent you an email.