Updating the Current Range and Trading Tactics for SP500 and Dow Jones

May 21, 2014: 11:46 AM CST

What is the main chart pattern – and key levels – to monitor (and plan trades) on the S&P 500 and Dow Jones charts?

Let’s take a look at the dominant range trendlines which provide a clear roadmap for planning the short-term future.

We’ll start with the S&P 500:

We’ll just focus our attention here on the yellow highlighted rising range pattern which serves as both a roadmap and magnet.

Imagine the midpoint of the pattern – currently near 1,885 – as a Magnet that pulled price back toward it on each upswing and downswing as price played ping-pong within the range.

While this appears on the chart as a rising trend, it’s perhaps best defined as a rising rectangle or rising range pattern.

Notice also how price (buyers) rallied up off the rising 50 day EMA (blue) on all occasions except February and April’s breaks.

Recently, we’ve seen five instances where buyers have flooded into the market exactly at the rising 50 EMA (mostly in May).

Here’s a close-up of the rising range and thus roadmap for planning current trades:

The chart above is a 120-min intraday view of the March to May rally with a tiny bull trap in early pril and larger bear trap later in the month.

We can see the rising Magnet (Value Area) Trendline currently just above the 1,880 index level – which is where price trades at the moment.

We’ll simply trade bullishly short-term above the rising magnet (1,882/1,883) toward 1,890 and back to 1,900.

Otherwise, we’ll look to play any sudden reversal down against the Magnet Level toward the lower support trendline into 1,865.

We provide you specific details of trade/strategy planning in our Daily Commentary Membership.

The logic is the same for the Dow Jones, yet we’ll simply focus on different index levels:

Dow Daily Chart

The Dow Jones shows a similar rising rectangle pattern and magic bounces off the rising 50 day EMA (blue), yet price nipped quietly under this level on yesterday’s sell-off.

Still, the rising reference level is just beneath 16,400 and the upper resistance target will soon intersect 16,800 while the midpoint trades near 16,600 (I’m keeping the index levels simple for easy reference).

Here’s a closer picture of the rising rectangle planning structure:

Dow Jones Rising Range

The short-term rising pattern forms support near 16,400 with a Midpoint (Magnet) near 16,600.

What looked like Bull Traps in March and May were target-plays into what we now see as a clear rising resistance (rectangle) trendline.

The logic remains that price will continue to trade within these boundaries/parameters until we see a larger-scale breakout that DOES NOT fail into a Trap.

For the Dow, that would be a downside break under the 16,350 level which targets the 16,200 support (then lower than that).

No matter what strategy or indicators you use, take a moment to clear everything off the chart and focus your attention on these rising rectangle reference levels and incorporate them into your trade planning.

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Corey Rosenbloom, CMT
Afraid to Trade.com

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3 Comments

3 Responses to “Updating the Current Range and Trading Tactics for SP500 and Dow Jones”

  1. May 22 Rally and Range Intraday Trading Update | Afraid to Trade.com Blog Says:

    […] Continue monitoring the intraday reference levels in the context of the broader “Rising Range/Rectangle” levels that I highlighted this morning on the Dow Jones…. […]

  2. Charting a Breakout into a Resistance Target for the NASDAQ | Afraid to Trade.com Blog Says:

    […] A stall or reversal here into known resistance would continue the sideways trading range also shown in the S&P 500 and Dow Jones (see my prior update). […]

  3. Rally and Range Intraday Trading Update Says:

    […] Continue monitoring the intraday reference levels in the context of the broader “Rising Range/Rectangle” levels that I highlighted this morning on the Dow Jones and S&a…. […]