Triple Stock Index Check to Start the May 31 week

May 31, 2011: 10:44 AM CST

What message is the market sending as we transition into June 2011?

More importantly, what levels are the current reference boundaries that – when broken – will likely trigger an impulse breakout swing?

Glad you asked!  Let’s take a look at the “Big Three” US Stock Market Indexes and review these levels.

First, the S&P 500:

Referencing dominant trend structure, the index remains in a positive/rising uptrend via the series of higher highs/higher lows and positively sloped EMAs.  That’s an objective fact that suggests bullishness until proven otherwise.

Where would the cracks in the armor emerge in the bullish case?

Simple – any breakdown (more than one day) under 1,300 is a major caution/trigger signal that suggests that the market could fall back to retest the confluence pivot forming at the 2011 low of 1,250.   It may be “too obvious” that 1,300 is the current dividing level between buyers and sellers.

With that in mind, as long as the market remains above the 1,300 level, it is in the domain of the buyers/bulls, and as I mentioned when highlighting very bullish volume early last week, “It’s the bulls’ game to lose now.”  That remains true.

In the short-term, the index is trapped between a falling parallel trend channel that has successfully contained intraday highs and lows since its formation from the May 2nd peak.

The dominant trend channel levels exist near 1,340 and 1,310 (approaching 1,300).

Long story short – a firm breakthrough above 1,340 confirms the bullish case and likely forces a good number of bears/short-sellers to cover quickly, resulting in a potential impulse/power swing to 1,370 or beyond.

By the same notion, a bearish breakdown under 1,300 suggests that the bulls “fumbled the ball” and would thus be forced to liquidate as eager bears/sellers rush in to push the market to the 1,250 confluence where buyers might find value.

This is the type of logic I explain – in more detail with more charts – in the daily reports for members.

This logic is similar in terms of structural levels in the other US Equity Indexes – starting with the Dow Jones:

The corresponding levels to watch in the Dow Jones are the following:

12,600 (almost today’s high) for a bullish closing breakout that may trigger a “feedback loop” of buying to the upside, which targets 12,800 or even 13,000;

12,100 which is similar to the S&P’s “1,300 Level,” which would open the door to a potential feedback loop of selling, pushing down to the 11,600 confluence.

I’m highlighting the interesting declining action in volume in both the Dow Jones and S&P 500 – it’s something to keep in mind.

Next, we move to the Tech-heavy NASDAQ Index for its reference levels:

The NASDAQ is the more ‘consolidating’ or ‘compressed’ of the indexes, at least when compared to the clear new recovery high made by the Dow Jones on May 2nd (which was only a ‘marginal’ new recovery high for the NASDAQ).

Watch for a breakthrough beyond 2,825/2,830 for the upside/positive bullish trigger, and the simple “round number” at 2,700 for a bearish breakdown trigger.

The way I’m interpreting the message sent by the market at the moment is simply the following:

“I’m bullish and trending intermediate-term higher unless I fail here at trendline resistance and then break my key support levels/the April 2011 lows.  I’ll prove myself a bull and aim for new recovery highs if I can breakout this week above my falling trendline resistance levels which I’m trying really hard to do today.”

Corey Rosenbloom, CMT
Afraid to

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3 Responses to “Triple Stock Index Check to Start the May 31 week”

  1. Pablo Says:

    Corey if you take the SPY instead of the S&P the parallel trend channel appears to be broken today. Which of the two is a better mirror of the market?

  2. Pwagner1 Says:

    This is very good-No BS

  3. A Quick Check on Intraday Intermarket Structure after the Friday Jobs Report | Afraid to Blog Says:

    […] is how the S&P 500 holds the absolutely critical Bull/Bear Battle Zone at 1,300 (see “May 31 Stock Market Check” for additional levels beyond the S&P […]