The S&P 500 has moved up into a short-term Gann Squares inflection level – similar to a Fibonacci level – which is worth considering as we move into the final push of 2010.

Let’s take a look at the updated Gann Squares Chart of the S&P 500 to see what the current and future levels are, and what they mean.

This is the same chart I update and track in the Weekly Intermarket Reports for subscribers, as well as post occasionally (like this) on the open blog.

Before I discuss the key index levels to watch, let me give a 10-second brief on what the levels mean.

Without giving too much away, the main idea is that a Gann Squares index level – shown as green horizontal lines  – are just price levels to watch for possible short-term turns in price structure.

You can see how price has turned/reversed at or very near these levels in the recent past.

The implication is that if price BREAKS THROUGH a Gann Squares level, then short term traders can play for a move to the NEXT higher or lower Gann level respectively.

If there’s no spike reversal – as was the case repeatedly off the 1,044 Gann Level – then there’s often at least a pause or consolidation at a level, such was the case in late September and early October before price blasts on to the next higher level.

Treat them like Fibonacci levels – they’re certainly not magic or crystal balls, but they can be helpful references when they combine with other non-correlated price levels or if you spot any sort of lower timeframe divergences at a Gann level.

Anyway – so what’s the big deal now?

Price has been punting up against the 1,247 Gann Squares level the last week and has not yet overcome it.

Either it’s a price pause – as was the case above – that will lead to a surge move up to the NEXT higher Gann Level at 1,283 (the bullish basis), or this is the start of a minor/short-term reversal that could target 1,212 or even the more important support level at 1,178 should a downswing suddenly develop.

It’s similar in a way to intraday traders doing Pivot Point analysis, wherein they expect a price move to the NEXT pivot in the event that price breaks through a current daily pivot.

So you can structure your IF/THEN style logic as the following contingency game plan:

1.  IF price breaks sharply up through the 1,250 level (1,247) THEN expect a potential move to the 1,283 level.

2.  IF price fails to overcome the Gann level at 1,247, THEN expect a retracement down to either of the two lower Gann Squares levels.

I find it helpful to trade by price levels as new data comes in each day, and play open-minded with IF/THEN statements, rather than bring preconceived biases (“the price HAS to break higher”… or “price HAS to collapse tomorrow”) to the charts.

Gann Square Levels can help in forming short-term IF/THEN plays.

Corey Rosenbloom, CMT
Afraid to Trade.com

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