SP500 Devolves into Another Trading Range

May 3, 2010: 12:01 PM CST

As we start May, we must make note that the short-term trend of the S&P 500 (and other US Equity Indexes) has devolved into a consolidation trading range with support and resistance boundaries as shown.

Let’s take a look at the trading range and what it might mean going forward.

This is an extreme close-up of the current boundaries for the S&P 500, which aren’t very clearly defined as most trading ranges.

The upper resistance boundary exists at the 1,210 level while the lower support zone rests at the 1,185 level.

The market has remained ‘trapped’ within this range from April 14th until present – as we rally higher today within the context of the range.

It has taken the form of a Head and Shoulders style pattern, but for now, perhaps it’s best to describe the current market as trading within this range, with expectations that the range will continue unless we see a firm breakout above 1,225 (which also breaks key weekly resistance) or beneath 1,180 (which will likely send us down to test 1,150).

The next question is “Have we seen this pattern before?”

The answer is – it sure looks like it:

Remember that markets must pause and ‘digest’ recent gains and losses, and do not move from point A to point B in a straight line.  Markets alternate between range expansion (like we had from the February lows) to range contraction (like we’re seeing now).

The last time this happened was from mid-November to late December 2009 before breaking up to a new high only to fall to test a lower swing low.

You had an opportunity to trade long (buy) once bulls pushed price outside the established boundaries, triggering “Popped Stops” and breakout traders to join the fray.

Thus, if history is a guide, we’ll stay in this range for a few more days (perhaps into next week) and then you should be prepared to trade a break of the range – from whichever direction it comes.

Keep up with day-to-day analysis and levels to watch for the next trading day by becoming a member to the Idealized Trades daily service.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

6 Comments

6 Responses to “SP500 Devolves into Another Trading Range”

  1. Dominick Says:

    Hello Corey, could that be a triangle forming? look at the last two weeks from 4/26 to present on a 15 or 30 min. chart. What do you think?

  2. colodude Says:

    Yeah, Dominick, I also saw the triangle, along with a baby head and shoulders, which is fulfilled if price breaks out of the triangle downward, or it isn't if it breaks upward. Oh well……..there's also an M and a W in there……..I guess I'm afraid to trade, too.

  3. Competing Patterns and Levels to Watch in SP500 May 4 | Afraid to Trade.com Blog Says:

    […] sure to read yesterday’s post “S&P 500 Devolves into Another Trading Range” to see the rectangle pattern that […]

  4. Dominick Says:

    Looks like a gap down Colodude. Lets see how it resolves at the end of the day.

  5. Corey Rosenbloom, CMT Says:

    Hi Dominick,

    I posted that chart in last night's report – of a symmetrical triangle short-term pattern on the close.

    There's also talk of a little head and shoulders pattern which appears to be breaking down today.

    I'll update soon.

  6. Corey Rosenbloom, CMT Says:

    Haha – it's just a consolidation pattern. It does make trading difficult while we're in a range (think back to November) but there's usually a price expansion trend move that breaks out of consolidation which provides good intraday opportunities.