Respecting the Range While Awaiting a Breakout

Jan 23, 2014: 12:50 PM CST

Short-term traders have been forced to “Respect the Range” behavior of the US stock market indexes as they challenge – or break – to new highs.

Let’s update the current range boundaries (price levels) of the S&P 500, NASDAQ, and Dow Jones which will be helpful for additional trade planning.

We’ll use the futures contracts for reference and start with the S&P 500 e-mini:

ES Futures S&P 500 emini e-mini Range Consolidation Trading Levels Planning

The S&P 500 shows the clearest Range, with the lower support area (green) near 1,820 and the upper resistance area (red) into 1,845.

I highlighted two smaller (yellow) range patterns accordingly.  These are “ranges within ranges” or a consolidation within a consolidation.

A breakdown cleanly under the 1,815 to 1,820 support cluster suggests the next move could quickly target 1,805 then perhaps 1,797.

Otherwise, this recent sell-swing is just part of the larger consolidation pattern (pushing down away from 1,845 range resistance).

The NASDAQ showed relative strength to the S&P 500 and took the form of a rising market, rather than range.

NASDAQ Futures NQ @NQ Trading Levels Range Consolidation Trade Planning

I highlighted three short-term range rectangle patterns in the ongoing uptrend in price.

The NASDAQ broke to new recovery highs in 2014 while the S&P 500 and Dow Jones index remained “rangebound.”

For the NASDAQ futures contract, the critical focal point develops just above 3,580 which served as resistance in late December and support through January.

A breakdown here targets the 3,560 price and 38.2% Fibonacci Cluster.  Otherwise we’ll “Respect the Range” support into 3,560.

While the S&P 500 took the form of a clear rectangle, the Dow Jones structure deteriorated:

Dow Mini Dow Jones Futures Dow mini futures Range Levels Trade Planning

After showing a strong impulse up from 15,700 to 16,500, the Dow Jones languished at the highs and formed a declining parallel trendline channel (think “rectangle” with a slope).

While buyers stepped in to defend the 38.2% Fibonacci and 16,200 support cluster, they failed this morning and we see a breakdown under support and an initial push toward the 16,070 or 16,000 (even 15,971) area.

Note the confluence of the 61.8% Fibonacci Level with the early December swing high.

We’re using a short-term Fibonacci Retracement grid for possible downside targets or ‘support-buy’ opportunities for aggressive traders.

Continue monitoring price relative to these key levels in conjunction with the indicators you’re using for your trading strategies – but don’t get too far removed from price itself.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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5 Comments

5 Responses to “Respecting the Range While Awaiting a Breakout”

  1. Quick Charting the SP500 Range Breakdown | Afraid to Trade.com Blog Says:

    […] SP500 Range Breakdown Jan 24, 2014: 11:45 AM CST As a follow-up to yesterday’s post “Respecting the Range While Awaiting a Breakout,” let’s take a look at how the range boundary came into play yesterday and more […]

  2. Matt Watterson Quick Charting the SP500 Range Breakdown Says:

    […] a follow-up to yesterday’s post “Respecting the Range While Awaiting a Breakout,” let’s take a look at how the range boundary came into play yesterday and more […]

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    […] Respecting the Range While Awaiting a Breakout (which occurred the next day) […]

  4. Matt Watterson SP500 Support Level Planning into 1770 Says:

    […] Respecting the Range While Awaiting a Breakout (which occurred the next day) […]

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