Let’s start with the bigger picture of the S&P 500 Weekly Structure Chart:
Even if you’re not a longer term trader or swing trader, it can still be very helpful to take a quick look at the weekly and even monthly chart of the main US equity indexes as we see above.
The main idea is to assess the dominant trend in motion and any key chart levels that draw your attention.
The Weekly Chart reveals a primary and intermediate term uptrend as evidenced by the rising green arrow, the series of highlighted higher highs and higher lows (which defines structure), and the EMA orientation (meaning the 20 week EMA remains consistently above the rising 50 week EMA).
As long as this structure continues, any short-sale trade (especially a swing trade) would be technically a counter-trend maneuver.
The reference points to highlight on the Weekly Chart include the 2012 swing highs at 1,422 and more importantly 1,474.
The market recently supported near the confluence of the rising 20 week EMA (1,412) and the simple 1,400 round number.
With that in mind, let’s now focus on the levels to watch as seen on the daily charts:
Let’s first state that the 5-day decline (retracement) was largely the result of traders worried that Congress would fail to reach a deal on the “Fiscal Cliff” negotiations.
Monday saw a strong rally as optimism returned and we see a strong continuation of the rally after last night’s successful passage of the “Fiscal Cliff” deal.
In other words, with one day (Monday) and an opening gap (Wednesday), the market just recovered all the losses from the previous peak into 1,450.
Now, back to the charts. Price finds an initial resistance barrier from the consolidation pattern that developed from September through October – it exists from 1,460 to 1,470.
This will be our focal point for this week, naming it the “make or break” area for bullish uptrend continuation or else bearish resistance into the target of the prior highs.
Keep in mind that the weekly chart seems to suggest additional buying pressure from the continuation of the primary trend in motion. That will be the thesis to test for the week.
Otherwise, a sudden break/reversal back under 1,450 would open the market to additional short-term selling toward the key 1,420 level.
The Dow Jones shows a similar picture through a clearer resistance level at the current highs:
I drew a blue horizontal “polarity” trendline into the 13,350 area which reflects prior support and resistance through 2012. This will be the immediate focal point.
An upside pro-trend continuation above 13,350 extends the upside target toward the similar consolidation highs from 13,500 to 13,600.
However, any sudden reversal/breakdown under 13,300 suggests a move back to the 13,100 then 13,000 key support confluence targets.
The NASDAQ broke its polarity trendline and enters the bullish zone as noted below:
I drew two horizontal “polarity” trendlines as noted – the immediate trendline exists at the 3,050 level and the lower trendline rests at 2,975. These levels reflect previous support and resistance and are focal points.
However, the NASDAQ gapped above the 3,050 level but stalled so far into the 3,100 level which is a minor pivot level as seen from the May, August, and recently the December ’spike’ highs.
Continuation above 3,100 suggests that the NASDAQ will continue moving through “Open Air” and target the 3,175 to 3,200 upside zone.
As a reminder, when assessing the daily charts and short-term levels, be sure to take a moment to view the higher timeframe, particularly the weekly chart for additional insights.
Related: S&P 500 Index (INDEXSP:.INX), S&P 500 ETF (NYSEARCA:SPY), Dow Jones (INDEXDJX:.DJI), ProShares UltraShort S&P500 (NYSEARCA:SDS), ProShares Short S&P500 (NYSEARCA:SH), ProShares Ultra S&P500 (NYSEARCA:SSO).
My name is Corey Rosenbloom, CMT (Chartered Market Technician) trader,educator, analyst, and I am excited to share with you my experiences studying and trading the markets and to hear from you regarding your experiences, challenges, and frustrations, and successes. My goal is to create a community dedicated to reaching out to those who have been burned by the market or are anxious about risking their money to make money in the stock, options, or futures markets. Together, we can share strategies and learn how to overcome crippling fears that keep us from achieving our highest potential.