S&P500 update: Another wild ride back to the 2703 major support level while price produces a spinning top. As dramatic or bearish as this market may appear on a day to day basis, it is hesitating at a level where a higher low is likely to form. Broader structure is still bullish and if anything, this is a time to consider buying into the retrace.
A Retrace In A Strong Market Means Buying Low
In my most recent S&P 500 report, I wrote about how the general structure is bullish AND that price can retrace as low as 2703 and still be strong. You can read that report here.
2703 is the .382 support relative to the 2552 low made in April. This level carries a lot of weight, but is far from precise. Remember the larger the magnitude of level, the greater the margin of error around the level.
This means when a price retests the level, a retrace can materialize +/- 25 points within the area. This is why waiting for confirmation is important, especially if you are trading the futures outright.
Potential And Risk
If the 2703 level holds and a buy signal appears (requires the close of current candle and high taken out by tomorrow’s candle), it can be the start of the next leg of the bullish structure. This move can lead to a new high near the 2822 reversal zone boundary.
A move of this magnitude can take a month to unfold, and will not happen in a straight line. The strategies to consider during a situation like this would be short puts on dividend paying stocks, like the ones in our portfolio. Long strong stocks outright, or long ETF’s or even the futures themselves. As Andrew has pointed out previously, the U.S. is the best place to invest at the moment, and the chart certainly reflects this.
The risk to consider is IF this market breaks below 2693. In this scenario, bearish momentum can lead price back to the 2646 reversal zone boundary. This level also happens to overlap the upper boundary of the .618 support zone relative to the 2552 low (it is not on chart for sake of simplicity).
A retest of the 2650’s would put this market into a range bound or more bearish situation. And defensive measures would have to be considered at that time such as hedging your portfolio.
Pay Attention To The Charts, Not The News
Staying on top of current events that can affect the market is one thing, but reacting to such information is the realm of the herd. Understand that any producer of financial or informational entertainment generates revenue on one thing, and that is the attention that they can attract. This is how they justify their advertising rates, pay their anchor’s salaries and cover their high overhead.
They do not try to mislead you purposely, it is their business to present what the herd is most interested in. They are in the attention business, not the strategy business.
I am harping on this because popular news outlets achieve their mission by producing drama. And drama can motivate you to make irrational or emotional decisions at the least opportune time.
If you want a more truthful, unbiased, and no drama perspective of the market, especially the S&P, it can be found on your chart. The levels offer more insight than any “expert” on TV. Watch the price action around the levels, and you will see that is where you will find a more honest view of the short term market intent. No matter what the talking heads are saying.
Broader Move Confirmation
A long trigger is one thing if you are trading futures contracts, but if you are managing inventory then broader confirmation offers a boost of confidence to continue to hold and even an opportunity to add.
Based on current structure, a close above 2733 is the sign that will imply strength will continue. This can be useful for determining if positions should be held, reduced or enhanced with covered calls. Keep an eye on our stock portfolio for these strategies.
Overall, don’t get sucked into the hype machine like the rest of the herd. Larger time frame charts serve as your honest beacon for broader market intent. Learn how to trust them more than what you see or hear on the TV.
For me, as a student of price action, it doesn’t matter why a market is moving, all that matters is where it is now. If it’s a level of significance, I have a reason to watch, and if it’s not, then I wait until it reaches such a level.
Questions and comments welcome.