For example, we may look to play bullishly for a bounce off a key level, or else trigger a short-sale position on a breakdown under the same level. It’s a way to view price without bias, awaiting a reaction into a critical level.
We have another short-term support level challenge – and opportunity – happening right now into S&P 500 index level 1,700 which we can see clearly on the hourly (intraday) chart below:
The 1,770 index level is a “Polarity” level, which means that 1,7700 has served both as resistance (early November) and support (mid-December).
It doesn’t mean that price is required to bounce again up off this level, but it does provide a clear “make or break” pivot to use for planning buy or sell strategies with the other indicators or trade entry methods that you use.
With the exception of a quick “Bear Trap” – an initial or quick break under 1,770 that results in an instant upward move back above 1,770 (reference December 18th’s “Fed Day” example) – we would generally look to trade bearishly under 1,770 or aggressively bullish on any upward impulse from 1,770.
When planning, keep in mind that Wednesday is another “Fed Day” where additional volatile action could quickly develop.
We can see the broader structure as seen on the Daily Chart:
I drew the “Polarity Level” (1,770) with a blue horizontal trendline.
We’ll note the prevailing uptrend in price that has been threatened with a break and close under the 50 day EMA.
To play devil’s advocate, notice also the late August and mid-October instances where a similar thing occurred (break and close under the 50 day EMA) only to see buyers step in aggressively to trigger a ’short-squeeze’ event which continued the uptrend in motion.
In conjunction with other strategies you’re using, pay close attention to what happens this week – or today – with respect to the critical “Make or Break” 1,770 Price Polarity level.
This article is brought to you courtesy of Corey Rosenbloom from Afraid to Trade.