Battle Lines Have Been Drawn

I have to admit, I didn’t think we’d get back up here, but here we are nonetheless. The markets have had a great run over the last few weeks, so the question is: Can we go higher?

The thing I love about the market right now is that the battle lines seem very clear. Please look at the chart of the S&P below to see where I believe the main technical points are:

First, the chart above was taken from Friday morning, so please take today’s price action into consideration when you make your trading decisions. You will notice that the 1130 level is an important price to the S&P even going as far back as January. The strongest evidence of this level though can simply be seen over the last 3 months. In addition, the 1040 level has shown itself to be quite formidable since the start of the year. Other than the quick fake-out in July, the 1040 price has been a strong technical level of support.

Now, there has been a lot of chatter about the lack of volume throughout this most recently rally, and in general over the last few months.  Although I agree with the skepticism in this rally because of this lack in volume, it obviously doesn’t mean the markets cannot go higher. I would encourage everyone to remember the proverbial “Price discounts everything”. In other words, volume may not support this latest price trend, but it certainly doesn’t change what the trend has done.

The Tale of the Tape: The S&P seems to have given us clear levels to watch. The 1130 level of resistance is key at this point. If the market were to break above this level, I would expect the markets to move higher until they tell you otherwise. Entering long positions would then be advisable. However, if the markets were to hold this 1130 resistance and move lower, I would keep a close eye on the 1040 level, if it happens to be reached. At that time, entering a long position could be in order. A break below that level though would be a very ideal entry point for short positions.

Waiting for the most opportune times that I have outlined above could provide you with higher probability entry points. No matter what your strategy or when you decide to enter, always remember to use protective stops and you’ll be around for the next trade.

Good luck!

Christian Tharp, CMT