SP500 at 1170 – What the Charts Suggest Next

Oct 12, 2010: 9:56 AM CST

So far, the S&P 500 has gently crept to the two shorter-term upside price targets after the breakout from resistance at 1,130.

Now that the index tests the second upside target, what does the daily chart show and what are the odds of breaking through… or falling down from here.

Let’s take a quick look:

Let’s do a little historical tracking first.

From a chart standpoint, resistance levels are important markers as price journeys to them.  It’s reasonable to expect a pause at resistance, but if that pause does NOT occur, then you must be on the look-out for higher price targets and higher resistance levels to play for (as a short-term trader).

In various posts – and in nightly member reports – the likely price target on the “IF/THEN” situation for a breakout above 1,130 has been 1,170.

See the prior posts:

SPX Breakout and Market Realities You Should Know

Is This Really It?  SPX Above 1,130 and Tips on Trading Breakouts

This situation is one of the best learning experiences for newer – and even experienced traders – who 100% doubted it was conceivably possible to rise above 1,130.  It was, we did, and we’re here.

So now we return to the present – what’s going to happen at 1,170?

In short, the same sort of “game” and IF/THEN statements.

To keep it concise, IF price breaks out above 1,170 THEN the next upside resistance target is 1,200 (round number) and 1,220 (2010 high and major Fibonacci).

Ok so that makes sense, but what are the odds of that happening, as they exist right now?

Given the tendency of the market to shatter resistance on increasingly lower volume and momentum – making this one of the weirdest breakouts I can ever remember – it might be wise to take into account this unusual bullish rally that has broken a lot of historical rules to get where it is.

From a Chart Purism standpoint, odds seem NOT to be in favor of a breakout, due to the following conditions:

A clearly weakening technical structure as evidenced by a considerable negative VOLUME and Momentum (3/10 Oscillator) Divergences.

Price formed a doji (candle) yesterday at the 1,170 expected price target (resistance) which coincided with the upper Bollinger Band.

Market Internals did not confirm the push to new index highs and also diverged at the 1,170 intraday level (especially the TICK).

This is a long rally, and the market has a historical tendency to swing back and forth, up and down, as it moves from level to level.

And I could go on.

The main idea right now is to watch the 1,170 level – be neutral to short-term bearish while we’re under the level, but also keep a close eye on the layers of support underneath price right now.

Those include daily moving averages, the 1,130 key price level, and rising trendlines (the main one ends about 1,145).

So we’re setting up one of those games where we have upside resistance on negative divergences, but lower rising support levels and a short-term uptrend in progress.

The bias is long for continuation above 1,170, neutral between 1,130 and 1,170, and bearish under the 1,120 level (and especially 1,100… which is 60 points below).

Keep a close watch on price, and eliminate your biases on what price can or cannot do.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

1 Comment

One Response to “SP500 at 1170 – What the Charts Suggest Next”

  1. Don-Da-Mon Says:

    I didn't expect a move above 1150 on the S&P, but we are still testing the flash crash zone as fund managers ensure they get profits for the year.

    I see a reverse head and shoulders that gives an upside target of the 2010 highs.

    How would these price levels help fund managers?

    Is it possible to tell if fund managers are reversing their positions?