Triple US Equity Index Check on Push to New Recovery Highs

Feb 3, 2012: 10:35 AM CST

This morning’s better than expected Jobs Report sent US Equity Indexes into or above key target areas that – if the momentum continues as it appears currently – will break price into New Recovery High territory which you’ll want to monitor closely.

Let’s take a look at the S&P 500, Dow Jones, and NASDAQ to compare current structure and what may occur on a breakthrough beyond these prior high resistance levels.

First, the S&P 500 Daily Chart:

The S&P 500 lags behind both the Dow Jones and NASDAQ currently, both of which already are testing (or breaking) their May 2011 price high.

The S&P has two little levels of overhead resistance from prior swing highs in July to overcome before breaking through to new recovery highs.

In terms of the broader picture, the main idea is that any continued push beyond these 2011 level opens the price pathway into “Open Air” which raises the expectation that price will continue moving higher into past resistance targets.

To see that on the weekly chart, let’s view the S&P 500 Weekly Perspective:

The S&P has nominal resistance into 1,350 and the 2011 prior price high is 1,370.

A breakthrough above these levels opens the door towards 1,400’s Round Number target and then into April 2008’s 1,440 target.

Should we see a future breakthrough above 1,440, then 1,500 extends to the new target and so on.

The situation is roughly the same in the two other US Equity Indexes, so let’s take a quick view of them.

The Dow Jones – as of this morning – fell just a few points shy of breaking through its 12,876 prior high from 2011 but that factor could change quickly.

A firm breakthrough soon above 12,900 suggests 13,000 will again be realized, and beyond that extends the target towards 13,500.

Yes, there are negative momentum and volume divergences in all indexes, but price in a strong trend – particularly the “Creeper Trends” we’ve been seeing lately – can overrule or overpower signals from any indicator.

It’s another way to say “Price is King” – these creeper trends remind us of that fact.

Finally, here’s a quick look at the NASDAQ which did break to new recovery highs today:

While the NASDAQ pushed to new recovery highs this morning, the key “round number” to watch is 2,900 for easy reference.

Here’s the Main Ideas from a simple charting and trading standpoint:

Either the indexes will continue their impulse/rally higher and thus break through these important levels, or else we’ll see yet another reversal lower.

Should the indexes continue their rallies and break through, we would look to play bullish developments into the “Open Air” beyond these levels.

However, if again these key prior resistance levels again hold, we would be cautious from the long side and aggressive/short-term traders may decide to play bearish set-ups on a movement down from these levels.

This type of logic helps us create our real-time planning (game-plan) for whatever style trading we use (swing, intraday, position).

Don’t get caught in either bias that price MUST break through these indexes or that price MUST reverse lower – price (supply/demand imbalance) will do whatever it does, with or without us as traders.

Reference these key levels and their importance to the bigger picture of the broader equity markets.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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Comments
  • Amazing write-up! This could aid plenty of people find out more about this particular issue. Are you keen to integrate video clips coupled with these? It would absolutely help out. Your conclusion was spot on and thanks to you; I probably won’t have to describe everything to my pals. I can simply direct them here!

  • Randallnunezsancho

    hi,
    What about the internals (ADD, tick, VOLD) , does it not matters?

  • Internals (including volume) certainly matter - I may try to do an update post on those as well - but creeper trends can go much longer than any technical indicator suggests they can.   Eventually, internals catch up with price but reference the October 2010 to February 2011 period with a very powerful price-based creeper trend.  2009 was similar.  Both periods ended with market crashes when internals "caught up."

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