S&P Back to Resistance?
We saw another week of wild volatility in the U.S. markets. The S&P has rallied more than 5% in the last week and a half. The big daily and weekly wicks that formed the week before last has seen significant upside follow-through. The markets have bounced all the way back to an area that could present serious resistance. Both the 50 and 100 day simple moving averages are around S&P 1960, as is the underside of the broken multi-year rising wedge resistance.
Looking at a weekly chart of the full rally from 2009 through present, the rising wedge is pretty clearly evident. However, where one draws the lower support line is debatable. You can cut out minor breaks in 2011 and 2012 and hug the 2013 bottoms to get a line fairly close to where I’ve drawn it. You could liberally include all intra-day bottoms and have the support below 1900 (where I’ve made a dashed gray line). Or you could draw that support line any number of places in between.
It seems to me that there are dueling reads in play. Last week’s large bullish wick on the weekly chart, coming at the 50 week moving average, would seem pretty bullish. Sentiment readings got quite bearish (which is bullish) as well during the big fall earlier this month. My view is that in the larger picture, the rising wedge is broken and I am viewing this rally as a Bull trap. I have not sold all of the long positions I opened last week, but I have started to add shorts. Unfortunately for me, I don’t have a clear sense for how much upside I would need to see before reversing my bearish view. Another very strong bullish week would surprise me, as would a rally to new highs. A marginally bullish week or two here would not surprise me. But first lets see how this resistance area plays out in the coming week…