SP500 Levels to Watch and Market Realities You Should Know

Sep 24, 2010: 1:40 PM CST

Days like this remind us of Mark Douglas’ “market realities” as explained in Trading in the Zone – specifically, “The market can do anything!”

Let’s take a look at the current structure of the S&P 500, note the most important levels to watch, and go back to a reminder about market realities as they exist currently – fighting these realities could be very costly.

First, the S&P 500 Daily Structure:

Let’s start first with the key technical levels to watch.

As I mentioned in last night’s subscriber report, we had at least a decent chance of supporting off the confluence level at 1,120 – though I certainly did not envision such a powerful rally forming off that support.  Wow.

As it is, confluence support held – so far.

For reference, the support is the 1,130 level from the price breakout, and the coming convergence of the 200d SMA (very important) at 1,117 and the 20 day SMA (less important – green) at 1,115.

It’s a buy as long as we’re above there.

Confluence resistance, as I see it, exists at the 1,145 level or more generally, 1,150.

Any move back above 1,150 sets the short-term goal to 1,170 which could occur quickly.

I mentioned this earlier in my “Game-Changer at 1,130” post where I defined the upside targets.

So here we are back at 1,150 playing the “Will 1,150 hold or not?” game.

Which brings me to my next point – dealing with current market realities.

From what I’m picking up on in the trading community, a lot of traders are having great difficulty right now because they were positioned short under 1,130 and thought there was no way possible the market could break above 1,130.

The first thing to say is to hark back to Mark Douglas’ teachings that “Anything Can Happen.”  It can – and often does.

Traders who approached this major technical resistance line from a perspective of:

“Hmm.  I know that it’s resistance, but I have to be open to the possibility that it might break, which means I’ll take stops and then perhaps get long to play for the upside break”

fared far superior than traders who viewed this test of 1,130 as an absolute brick wall that HAD to turn the market lower.

Having an open mind and planning objective “IF/THEN” statements often trumps bias and ‘absolutes’ about what the market must or must not do.

The reality now is that as long as the market is above 1,130, further bullish potential remains.  Remaining short above 1,130 might be a dreadfully painful experience, particularly if resistance at 1,150 ALSO breaks.

If it comes down to holding a stubborn opinion versus following what the the market is actually doing (as opposed to what it should be doing)… my bet’s on the market every time.

If you’ve not read Trading in the Zone, I – along with many traders – strongly suggest reading that timeless classic.

Corey Rosenbloom, CMT
Afraid to Trade.com

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


2 Responses to “SP500 Levels to Watch and Market Realities You Should Know”

  1. HighRev Says:

    Great coverage Corey, as always. Thanks a million!

    I've put up a special post in the Technical Analysis forum on the MarketTicker Forums. It's too long and complicated to repost here. Take a gander (it's in the free, no-registration-required area), and let me know what you think.


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