Home > Financial Ponzi > S&P Back to Resistance?

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.

2014-10-26-2014-ES-XST_CHARTS

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.

2014-10-26-ES-LT_CHARTS

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…

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  1. Draft
    October 29, 2014 at 10:02 am

    I don’t know if it was wise, but I’ve scaled into shorts over the past couple of days.

    • October 29, 2014 at 10:26 am

      You and me both. I actually started a bit lower, but have continued scaling into short without selling longs (yet). And like you, I have my sense of nervousness. I sort of expect a moment of truth this afternoon with the FOMC news. The market has pushed higher than I expected – especially late yesterday’s short squeeze. It’s into the area that could be forming the right shoulder of a Head-and-Shoulders pattern, though the selloff in early Oct went deeper than common for that pattern.

  2. Draft
    November 1, 2014 at 12:01 pm

    I’m a bit worried now — it looks like SPY might have broken above resistance…

  3. November 3, 2014 at 12:11 am

    Yes, I meant to post this weekend, but didn’t get aroynd to it. S&P has broken to the upside of everything except double top. Nasdaq is far into clear. Big bullish wicks for weekly (2 weeks ago) and now monthly. Market is undoubtedly in bubble, imho, but I think it goes higher from here.

  4. Draft
    November 3, 2014 at 11:58 am

    Where does the SPY top of wedge resistance come into play? 2030? It seems that resistance keeps the top on things, does it not?

    • November 5, 2014 at 6:47 am

      Draft, I haven’t had a chance to check a chart but 2030 sounds about right. That upper line has been very solid resistance, although we ridden upward along the trajectory of that line a few times.

  5. Draft
    November 6, 2014 at 12:29 am

    Looks like the top of the wedge might be more like 2035, but in any case it looks like we’re getting close.

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