(By Afraid to Trade)US Stock Market Indexes have rallied into the initial resistance level accordingly, and now appear poised to break through these levels with the favorable outcome in the Greek election over the weekend.
Let's take a quick glance at the current daily resistance levels that price could shatter this week on a push through a visible "Open Air" pocket.
Here's the S&P 500:
We've been monitoring the 1,340 level as a confluence resistance target that was established on the bounce-rally from 1,275's key support level.
Now that price rallied all the way to the initial upside target (1,340/1,350), we're now watching this week for a potential power-breakthrough above this level into the "Open Air Pocket" that exists above 1,350.
For reference, when price breaks through a visual resistance level on the chart, it tends to force rapid action – namely it forces short-sellers to buy-back losing positions to cover while higher prices and broken resistance trigger sidelined buyers to step in with new positions.
When both buyers and sellers are buying, this tends to foster a Feedback Loop wherein higher prices lead to higher prices.
This expectation is particularly appropriate when price breaks above confluence resistance and there is no visual or obvious price levels, indicators, or trendlines above the newly broken resistance.
Such would appear to be the case in the current stock market – the breakthroughs of the intermediate resistance levels could spark a power-rally through the Open Air Pocket.
Open Air – from a chart-perspective – develops because there are no nearby upside reference levels for buyers to take off positions with a profit (exit old positions) or else for short-sellers to step in to sell (put on new positions).
So far, the positive outcome in Greece could be the impulse that pushes buyers to enter and sellers to exit, triggering an upside move through resistance (and towards higher targets).
This is by no means guaranteed, so we'll have to monitor these key resistance levels – and upside targets through Open Air – as real-time events develop throughout the week.
Here are the levels in the Dow Jones Index:
A Neutral Consolidation Band developed between 12,500 and 12,700 – price broke through the 50d EMA and upper resistance into 12,700 to trigger a potential upside breakout that needs confirmation (additional upside action) in the week ahead.
A move through "Open Air" could result in an impulse back to 13,000 or even beyond 13,300.
A failure next week that takes price back under 12,500 would send the opposite signal, locking-in the resistance barrier and allowing for lower targets.
Finally, the NASDAQ shows price not quite (as of last Friday) through its EMA confluence:
The Horizontal Band has developed between 2,800 and 2,900, as the upper resistance exists at the 2,900 level (including the falling 50d EMA and upper Bollinger Band, along with the prior short-term price highs).
Movement higher than the 2,900 level – breaking resistance firmly – could ignite a positive feedback loop (buyers buying to put on new positions for profit; sellers buying to exit old positions at a loss) which opens upside targets back to 3,050 and 3,100.
Given the bullish Greek news this weekend, should a "surprise" decline instead send price back under the lower support band at 2,800, it would suggest lower prices (2,750 at least) would open at that point.
As this week unfolds, continue watching these midpoint resistance levels and the potential for buyers to shatter them all… or on the flip-side, for bears to surprise us with a successful hold (or worse – a bear trap) just beyond these key daily levels.
Corey Rosenbloom, CMT
Afraid to Trade.com