SP500 Range Structure Magnet and Bull Trap Reversals

Apr 25, 2014: 10:08 AM CST

For intraday and short-term traders in the market, it’s important to develop a framework of key levels on the S&P 500.

We’ve seen a clear sideways rectangle pattern develop with clearly defined boundaries (support and resistance) as price alternates within this range.

Let’s update our range (which is unchanged) and note three painful Bull Traps that triggered – and of course how to plan the next swing.

Let’s start with the clear boundaries or index levels for guidance:

1,884 is the Strong Upper Resistance level which has defined the top of the market since March (excluding the divergent  trap of early April)

1,871 is the Weaker yet still important Lower Ceiling from which our current “trap” sprung (note highlights)

1,855 is the Midpoint or Value Area of the blue pattern (note swing lows from late March)

1,840 is the Lower Support Level of the entire pattern (also excluding the divergent trap from mid-April

Despite all the volatility and seemingly random price movement, buyers and sellers have adhered to these range reference levels since they were created in March.

Think of 1,855 as a strong magnet.  Buyers push the market higher and higher from the magnet, yet eventually price snaps-back like a rubber band.

Similarly, sellers push the market lower yet the further price extends from the magnet (1,855), the more violent the reaction is when price does snap back.

Because we’re planning the current swing, I highlighted prior areas where price broke above the 1,871 level yet stalled into 1,884’s resistance.

Note that each time, price reacted (traded) back lower toward the midpoint magnet (1,855) if not back to 1,840.

This expectation or pattern will define our strategies/trades from here:

Either we see a historical repeat where price snaps-back to the magnet (bearish bias under 1,870)…

or else we see some sort of surprise (unexpected) event where buyers thwart a logical sell-off toward the magnet.

It may seem strange to focus only on price devoid of indicators, but within a Range Rectangle or Magnet Pattern like this, sometimes price is the only thing that keeps us grounded (or at least provides the clearest framework for game-planning the next swing).

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Corey Rosenbloom, CMT
Afraid to Trade.com

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2 Responses to “SP500 Range Structure Magnet and Bull Trap Reversals”

  1. Critical Trendline Channel and Trade Planning for Bank of America BAC | Afraid to Trade.com Blog Says:

    […] The Daily Chart reveals a clear “Rising Parallel Trendline Channel” pattern or – as I showed earlier with the S&P 500 – a “Rising Trendline Magnet Structure.” […]

  2. April 25 Trap Reversal Intraday Trading Update | Afraid to Trade.com Blog Says:

    […] be sure to brush up on this morning’s update regarding the broader Rectangle Trendlines which set the stage for this morning’s “Bull Trap” or reversal down against […]