Planning the SP500 into the New 2040 Level

Nov 12, 2014: 12:29 PM CST

Market Internals and a Critical Trendline give us clues about how to position into the current 2,040 level for the S&P 500.

Let’s see both of these and update our trade planning:

A Broadening Top or Expanding Trendline pattern continues to plague the market, or at least the charting side of the market.

The upper trendline extends into Tuesday’s high at 2,040 which is our key planning or pivot point.

Ultimately buyers should look to take profits into 2,040 ahead of a likely pullback, and very aggressive short-sellers can be emboldened to attempt a short-term pullback play against 2,040 (placing stops above 2,040).

You should be fully aware – and totally prepared – that a break above 2,040 simply would extend (continue) this impulsive short-squeezed rally higher as sellers would be the first to take their stops above 2,040 (a buy order) and bulls would then step in as well.

Market Internals paint a bearish (cautious) picture into the 2,040 level:

These extended or non-stop rallies are actually MORE common in today’s stimulus-manipulated markets and we shouldn’t be surprised by them.

This is the 15th instance of a similar multi-week rally since the 2009 bottom and we’re using the prior events as guidance.

Traditional analysis and planning would have us be bearish and cautious, eagerly expecting a logical pullback against 2,040.

We’ll play the traditional odds accordingly, which would make us cautious/bearish (taking profits or short-selling against 2,040 expecting a short-term pullback perhaps to 2,000).

However, we’ll be open-minded and play the “new market” probabilities which have us breakout bullish above 2,040 in the event price triggers a short-squeeze rally higher beyond the 2,040 (triggering stops along the pathway higher).

We’re objective as traders, not biased, and we plan a bullish and bearish thesis – and let price be our guide.

Afraid to Trade Premium Content and Membership

Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s book The Complete Trading Course (Wiley Finance) is now available along with the newly released Profiting from the Life Cycle of a Stock Trend presentation (also from Wiley).

4 Comments

4 Responses to “Planning the SP500 into the New 2040 Level”

  1. Nov 12 Update and Stock Scan Down from the Highs | Afraid to Trade.com Blog Says:

    […] this morning’s market update on the magic of the 2,040 level and how we’re planning around […]

  2. Father Lucifer Says:

    Thanks Corey, love that you post midday.

  3. Ansari Says:

    It is so hard to understand this stuff; it needs high knowledge, experience and skills to be able to succeed in this stuff. I mostly keep myself away from trading in them, so I prefer currency pairs trading, it is much easier and with my broker OctaFX, it allows me to trade with low spread of just 0.2 pips while also provide me healthy rebate of 15 USD per lot size, it allows all my trades to give profit even it’s in losses.

  4. Siraj Says:

    Ansari it was same for me when I started learning, but as time went on instead of facing it hard I was happy, as it was really excited. Learning can be easier if we think of it as a game or a social site, where we spent or waste so much time, but I agree with your last point on OctaFX, they indeed make things so easy for us, as I am their regular customer and I have never faced any issue.