Quick Retracement Check on Structure and Levels in SP500 and NASDAQ

May 23, 2013: 12:10 PM CST

After a sudden (yet overdue) retracement took the major US Equity Indexes back to their rising 20 day moving averages, let’s update the current structure and short term reference levels in the SP500 and NASDAQ.

We’ll start with a bigger picture view of the SP500 and NASDAQ:

To keep this update brief, I’ll simply focus on the price interaction (pullback) to the rising 20 day Exponential Moving Average (EMA) which trades at 1,633.

We’ll see from an intraday chart that this level intersects another important intraday trendline, but for now our focus is on whether price bounces up or instead breaks under the reference support level to continue toward the lower target.

In a rising trend that is showing visual separation between the 20 and 50 day EMAs (also called “moving average orientation”), we look for the rising 20 day EMA to be a target for any retracement swing.

The rising 50d EMA intersects an easy to remember ’round number’ reference level target of 1,600.

In the event that price begins trading under the 20d EMA reference level, we then look for intraday play and swing (price) continuation down to the expected support of the rising 50d EMA (reference mid-April along with mid-February 2013).  Note the highlighted red/green band on the price chart to reflect this “If/Then” logic.

The situation is the same in the NASDAQ (and Dow Jones for that matter):

The two overlapping reference levels for the NASDAQ will be the ’round number’ 3,400 level and the rising 20d EMA currently at 3,416.  Note the intraday index ‘gap’ low of 3,422.

The price action intraday has supported pro-trend continuity (bounce), yet again any breakdown under 3,400 would open an expected opportunity to trade back to the prior gap and rising 50d EMA overlap into 3,350.

Let’s step inside the market and take a look at the 30-min “structure” of the SP500 and NASDAQ:

When referring to Market Structure, we describe the series of price highs and lows as they progress to ‘build’ a trend.  Trends are expected to continue until clear evidence – such as a reversal of structure – proves they have reversed.

We see the trend structure continuing a lengthy intraday uptrend environment through all of 2013 so far, with the movement from April 17th to the present comprising a single upswing in price.

The key level to watch at the moment is the price interaction with the rising upper trendline as drawn at the 1,635/1,640 level which was the intraday spike low this morning.

Again, align this with the Daily chart 20 day EMA into 1,633.

We turn now to the NASDAQ intraday structure with a Fibonacci Retracement Grid:

The structure (progression of swing highs and lows) remains similar to the SP500 yet the April volatility created the first lower swing low into April 18.

A solitary swing low does not invalidate or reverse a trend in motion; instead, it takes a lower high, lower low, then a breakdown under the new lower low to reverse a trend.

Nevertheless, we can see the negative momentum divergences ‘undercutting’ or failing to confirm the new price highs achieved earlier in the week.

The 23.6% ‘lesser known’ Fibonacci Retracement level exists into 3,432 which is a level that also can be a short term reference for intraday traders – the index trades above this level currently.

Going forward, we’ll be watching these levels closely, specifically the 20d EMAs, and assessing whether the next swing in price can muster the strength (buyers step in to ‘buy the dip’ again) to take the indexes back to and then above their all time highs (continuing the trend) or else whether they can only rally the indexes to a lower high which would be a clear early warning sign of potential short-term trend reversal.

Again, we’ll focus on the daily chart reference levels with respect to the strength of the current ‘up-swing’ and the structure it creates on the chart.

For prior reference posts on Market Structure, take a look at the following:

April 17 Triple Index Check-up on Sudden Shift in Market Structure

April 10 “Interesting Breakout Structure” Update

Planning Market Structure to Start April

March 6 Structure and Triangle Breakout Update (Dow and SP500)

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

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

Corey’s new 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).

Comments Off on Quick Retracement Check on Structure and Levels in SP500 and NASDAQ

Comments are closed.