Midweek Glance of the SP500 May 20

May 20, 2009: 11:05 AM CST

With Wednesday being the midpoint of the week, let’s take a look at the current structure of the S&P 500 Index from a technical perspective to see where we are and where we might be heading.

We see the power of the swing-up (which is still classified as a “counter-trend” move up in the context of a pervasive downtrend) which has taken price up to the 940 level to challenge the January high just above 940.

The 940 area will be the critical zone to watch in the coming days – look closely and you’ll also see that the falling 200 day SMA resides at this level as does the upper Bollinger band and price resistance from the January highs – that makes three simple forces of confluence resistance.  It will be a major test for the bulls to overcome and it might be better to await the resolution of this battle (of supply and demand) rather than trying to ‘predict’ which side will win.

If not, then we see support from the rising 20 day EMA at the 890 to 900 level, so notice that support (via moving averages) is rising and resistance is constant.  One of these two forces will break – join the side that wins instead of trying to be a hero and predict which side will win.

Even so, for whatever your opinion, the stop-loss levels are clear (above 940 for shorts and beneath 880/preferably 860 for longs) and the targets are larger than the stops provided you get the continuation move you expect.

Other technical factors to watch include the negative momentum divergence which has been forming since April (‘momentum’ tends to show false divergences during a strong, sustained move) and the volume divergence and decline off the current three-day rally.

According to Mark Douglas (Trading in the Zone), it’s best to note key technical levels which will provide inflection points and then wait to see who emerges victorious and then join that side.  We see such an inflection point at the 940 level (if bulls can push it there).  We might do well to heed his advice.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

14 Comments

14 Responses to “Midweek Glance of the SP500 May 20”

  1. JoAnn Says:

    Great analysis Corey. Thank you.

  2. Bob Says:

    For what my two cents are worth…

    A fibonnaci confluence at 940 provides a strong levle of resistence; add the declining 200 day moving average at a recent major inflection point… this is a strong ceiling of resistence.

    on the downside, add in a rising market with moment; rising shorter duration averages providing a solid level of support; also another fibonnaci confluence zone around 884… There's a lot going on in a tight price range.

    It won't surprise me if price bounces between these levels and a consolidating flag or pendant form. But, whatever the shape of the pattern that forms, it's the move that breaks and closes outside these levels that will be telling.

    Cheers!

  3. Corey Rosenbloom, CMT Says:

    Thanks Bob! I didn't want to add too much to the chart but you're right, Fibonacci comes in at 940. Maybe I'll show that on a separate post.

    Precisely – although we have a heck of a lot of resistance about the 940 area, the bulls have shown absolute indifference to all forms of analysis that even hints that price should be going down. Eventually it will have to – there's no way it can keep rising at this pace or else we'll have S&P value 2,000 in a few months!!

  4. Bob Says:

    I've observed the trending nature of the markets of late. Last weeks slide was a “flinch”. Will the bulls hold?

    Observation… In this rally, as price runs up and seems extended to a point where a pull back looks probable, and the candles illuminate the likelihood of a downward trend, and oscillators confirm down,… retracements end up being shallow and support is found at the moving averages… ????

    Is this a common occurance for upward trending markets?

  5. j0sh1ngU Says:

    usd dollar has made full retracement. gold and silver stocks breaking north… but can both go up?

  6. Bob Says:

    As for indifference… Didn't someone coin the phrase, “irrational exuberence”?

  7. Don-Da-Mon Says:

    FYI, MarketClub on SP 500 showed an enter long position a couple days ago.
    Does anyone think we WON't test 940? So isn't it a good bet to be in long now until then? I didn't get up the nerve to go long. Seems that 940 /200 Day MA is a sure test. Most all other bear market rallies touch the 200 MA, don't they?

  8. meques Says:

    off topic. i hope you know and working on it, that its imosible to go at second page of search results at least in opera, internet explorers 7, mozilla firefox 3.
    i just trying to find screenshot of your trader monitor, your working place.

  9. meques Says:

    finally found in google. http://blog.afraidtotrade.com/a-peek-over-corey

  10. meques Says:

    off topic. i hope you know and working on it, that its imosible to go at second page of search results at least in opera, internet explorers 7, mozilla firefox 3.
    i just trying to find screenshot of your trader monitor, your working place.

  11. meques Says:

    finally found in google. http://blog.afraidtotrade.com/a-peek-over-corey

  12. SP 500 Consolidates in Tight Range | Understanding The Stock Market Says:

    […] I mentioned recently, the S&P 500 has (at least) three levels of confluence resistance at the 940 level via the falling 200 day SMA, top of the Bollinger Band, and the January highs. […]

  13. SP500 Consolidates in Tight Range | Penny Stock Trading System Blog Says:

    […] I mentioned recently, the S&P 500 has (at least) three levels of confluence resistance at the 940 level via the falling 200 day SMA, top of the Bollinger Band, and the January highs.  […]

  14. So This is What Resistance Looks Like in SP500 | Afraid to Trade.com Blog Says:

    […] lengthy price consolidation at such a key level.  Price already has already inched above a “Triple Confluence” level I mentioned previously at […]