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S&P Stock Market Trend Analysis

Stock-Markets / Stock Index Trading Dec 09, 2009 - 02:55 AM GMT

By: ForexPros


The following is a predominantly technical analysis view of what to expect to in the stock market in the upcoming. We will use the S&P 500 as our reflection of the market. This can be used by day traders, swing traders or investor to gain insight into what is unfolding, what to expect and what to look for.

Intra-day traders saw large and swift moves occur this week. If an hourly chart of the S&P 500 is pulled up for Nov 10- Dec 4, we see a range which is peppered with aggressive buying and selling into the extremes and then pulling back off the levels and heading to the other side.

Something very interesting to note is that on 3 consecutive days (Dec 2, 3, 4, always early in the day) the market went above the previous swing high, triggering stops and buy orders, and then pulled back into the range. The lack of conviction above 1115 indicates this market is not likely to move aggressively higher…and if and when it does it will be in the new year.

This does not mean we won’t see tradable moves above 1115, but with circumstances right now - volume light, global risks, disconnects between intermarket relationships- this area is a danger zone until volume picks up and we successfully break above this area, move higher and then on a pullback successfully hold that level. In other words, patience will be required.

Massive moves are expected in all the following major markets: currencies, commodities and the stock market (bonds too, but I don’t focus on them too much). We may have started to see this on Friday. How easily we jump from bubble to bubble. What catalyst sets off the fireworks is yet to be determined.

But lets’ move to focusing on the actual technical levels of importance:

In the upside, 1115-1120 is a resistance area determined my multiple false breakouts. I would use at least a two point buffer above this level. As mentioned above, with light volume I much prefer not to trade the breakout but wait for the breakout to falter and then short the market as it falls back through the resistance area (that is not advice…that is simply what I am watching for). If a legitimate breakout does occur, even on light volume it can scamper quite a ways. Targets are 1123, 1128 and 1131.

On the downside 1096 is important. A move through there takes out the Friday low and would successfully close the window (gap) opened on Dec 1. Such a move indicates a movement to test to lows of the range. 1087 is the most likely target followed by 1085.

A drop below 1080 (using a buffer below the lows) would punch us out of the range we were in. The target for that breakout is 1055 which is just above a hourly trending support line (going back to Sept). There is important interim support which will provide us with other signals during the week. There is little support, in the event of a break downwards, until 1072. This is the top from a gap that occurred back in early November. The low of the gap is 1070. If that gap is closed by new price movement it is a bearish sign and prices are expected to continue to chart lower into the 1068-1064 area. Support also comes in at 1060, therefore it will take fierce action to reach 1055 if in fact this market does break lower. This is because the average weekly range for the S&P is just over 37 points, and the market closed on Friday right around 1106.

Trade with the trend, but don’t become attached to it.

Analysis by: - Written by Cory Mitchell, CMT

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