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Updating The SP500 Rising Range And Key Levels

 December 26, 2012 05:13 PM


I wanted to update the structure of the S&P 500 from last week's "Rising Range Trading Tips" post and also focus on the key reference level as we close out the last week of 2012.

Here's the "Rising Range" Structure update:

Last week's post saw the S&P 500 into the 1,450 upper trendline and we can now see that price – with divergences – successfully reversed at the upper boundary and traded all the way back to the lower boundary at 1,425.

[Related -How Apple Could Send This Emerging Market Into Overdrive]

After an initial bounce off the 1,425 level, price has since stalled and broke sharply under the trendline to the current 1,420 level.

While trendline patterns like these are very helpful in guiding real-time trading decisions – particularly as price interacts with either the upper or lower rising trendline – the fact is that price cannot remain between these boundaries forever.

When price breaks out of a key (some would say obvious) pattern like this, it does note a change in structure and potential change in trend.

One must be on guard for a breakout impulse in the event price remains outside the trendline boundaries.

[Related -Jobless Claims Fell Last Week, Underlining Bullish Trend]

Traders and markets will likely focus on any new developments regarding the "Fiscal Cliff" negotiations (deal or no deal?) so do be aware that headline risk is higher than normal (meaning the market has the potential to break sharply higher if a deal is reached or else break much lower if a deal is not reached and traders react to that news).

With respect to the broken trendline pattern, we turn our attention to the key Daily Chart inflection level:

What looks bearish at the moment on the intraday chart (regarding the trendline break) shows a critical test of confluence support on the Daily Chart.

We see the current 1,415/1,420 level as the critical inflection that likely divides the short-term market into bullish strategies above 1,420 and bearish ones beneath.

A continued sell swing that does break under the 50d EMA (currently positioned at 1,417) and the 1,415 level would be expected to fall even lower toward the 1,400 (round number) or 1,390 (rising 200d SMA) index targets.

However, buyers do have one last chart-based chance to support/bounce the market off the 1,420 level.

For short term traders, this will be the key inflection point from a chart perspective, though do keep in mind that the market is likely to react accordingly to good or bad news regarding the Fiscal Cliff situation.

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