Will it Hold or Break? Major Resistance Revealed on the Three Indexes

Jul 22, 2010: 11:18 AM CST

No matter what index a trader monitors activity, all three key US Equity Indexes are bumping up against critical resistance levels, where a break solidly above these levels would be a major game-changer to the short-term structure in place.

Let’s take a moment to learn these levels on the three charts, and be prepared for the upward reaction that would occur on a solid break, or the downward move that is likely if resistance holds.

First, the S&P 500:

Rather than do an in-depth analysis, my goal in this post is to highlight the key levels traders are watching like ravenous hawks.

In the S&P 500, the main initial level is simply 1,100 – easy to remember.

A break above 1,100 likely sends the index up to test the 1,130 level, and if buyers push beyond 1,130, it would be a big shift in the structure that would call the current downtrend into severe question.  Anything else and the downtrend (lower lows and lower highs) remains in place.

It would change the structure because price would have formed a higher low (here) and broken above the higher high of 1,130 – short-term game-changer.

Next, the Dow Jones:

Like the S&P 500 at the 1,100 level is easy to remember, the game-changing level to watch in the Dow Jones is 10,400.

The parameters and structure would be identical to the S&P 500, where a break and close above 10,400 likely sends us up to 10,500, and a break above 10,500 changes the short-term trend structure.

Anything less than that, and price remains in a downtrend.  There will be a lot of stops placed above 10,400 and 10,500 – which could add fuel to a bullish fire.

Finally, the NASDAQ Index:

The level to watch in the NASDAQ is closer to 2,260 – not as neat a level as 2,250 would be, but that will be your short-term level to watch.

A break above 2,260 likely sends the index up to the 2,300 level, and – like the other indexes – a break beyond 2,300 is the short-term trend game-changer.

We would expect all indexes to do the same thing – meaning either they all break short-term resistance here and test the next level and break it, or all fail to overcome resistance and crack lower here, hanging on the edge of a bullish cliff.

As traders, we look to levels to help us determine the supply/demand relationship, and we don’t try to guess with a crystal ball what will happen.

Recognize what is happening, plan for contingencies, and trade appropriately, managing risk along the way and guarding against bias (bias as in “Price HAS to hold at resistance” or “Price HAS to break above resistance”).

Watch what happens at these levels very closely – everyone else is.

Corey Rosenbloom, CMT
Afraid to Trade.com

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

9 Comments

9 Responses to “Will it Hold or Break? Major Resistance Revealed on the Three Indexes”

  1. fors Says:

    Great Post. Check you level on the $INDU. 14,000 was a typo. I think you meant 10,400.

  2. Ajay Says:

    Hi corey

    nice…! one request…can u post – how to identify a-b-c patterns described by linda through her 3/10 oscillator, if your time permits.

    Thanks –

    Ajay

  3. terlyn Says:

    I think you meant 10400 on the DJI.

    If SPY doesn't break abaove 110, there will be a double top on the 60-minute chart.

  4. Don-Da-Mon Says:

    Too short term? I'm thinking 1150 on S&P for head and shoulders and complete the A-B-C up we are in now. It should test into the flash crash zone as the next quarter ends. Managers work quarter to quarter so I look for targets and resistance with those implications. Oct, Feb, May, Aug targets. Above 1150 is a game changer.

  5. Saurin Shah Says:

    Hey Corey,

    Try to resembled the same technical setup which took place in 1929-30 in DJ industries whre after being made complete H&S ..Dow had formed another right Shoulder and than collapsed. If are not closing above the bullish cliff level of 1130-50 thn .. situation might repeat

  6. colodude Says:

    The SPX chart (and the others) currently have the Texas formation–Big Bend country, followed by the Brownsville, Rio Grande area, followed by the slope up the Gulf Coast to Louisiana. This pattern normally requires a visit to the Florida Peninsula before heading up the Atlantic Coast to higher prices. I just never have the guts to bet on that behavior in advance, but it's funny how often I see it.
    Regards

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