Daily and Weekly View of the S&P 500

S&P 500 Daily:

The first thing that should jump out at you is that price rallied the last three days and officially closed above the 50 day EMA, breaking resistance for the moment.  That’s a significant development, but as many have noted, it was achieved on low volume, signaling a non-confirmation.  Next week will be critical once traders/funds return from the holidays and begin to settle back to work.  It’s possible the Bulls scored an uncontested victory provided Bears were away enjoying their profits.

Next, we should be aware that the 38.2% Fibonacci retracement of the August to November move comes up around 962, which is about 30 points away.  Bulls may be hard-pressed to pierce this zone, but if they do, it will signal a potentially significant change in price structure.  You need to watch this level very closely.

Third, note that price has succeeded in making consistently lower lows and lower highs – this structure has not changed.  The structure would officially change if price were to overtake the swing-high at 1,000, creating a higher high and confirming December’s activity as a ‘higher low.’

Fourth, notice that a large-scale positive momentum divergence has been forming since October, which could be working itself off currently.  Momentum divergences signal that the next retracement is expected to be stronger than normal, or that – in this case – the bears are losing momentum as price reaches new lows.

Finally, I’m showing different signals or clues in volume via different arrows.  Traditional analysis says that rising volume confirms price moves (such that lower prices on steadily increasing volume *confirms* the price move and suggests that lower prices are yet to come… which was the case both times in September and October).  The November 750 low was quite significant because it represented a positive momentum divergence AND a non-confirmation of new price lows via volume.  In other words, the 750 level was strongly rejected and should hold for some time, though perhaps not indefinitely.

Let’s pull the picture up to the weekly chart for additional perspective.

S&P 500 Weekly:

The great “Which Elliott Fourth Wave are we in?” continues but I’m sidestepping that question to focus on other price structures.

Namely, the November price lows were achieved on a weekly positive momentum divergence, which is worth noting.

The other structure that should ‘leap off the chart’ at you is the expected overhead resistance that comes in near 1,000 via the falling 20 week EMA.  That will also be a significant barrier to overcome and would change the landscape yet again if bulls could do so.

Remember the next overhead resistance – should we make it there – is the 960 area which is the 38.2% Fibonacci retracement of the August to November swing.  Breaking above it, we would have 1,000 as the next likely resistance.  Beyond that, we’d have to declare a “Game-Changer” because price would have broken key resistance and formed a new swing high which would reverse the daily trend back to the upside.  Though it may not happen, you need to be keenly aware of this possibility.

We’re technically in a retracement swing (counter-trend move) to the upside which has key resistance levels overhead.  Both the daily and weekly moving average orientation is in the “Most Bearish Structure” possible and both trends are long-confirmed down (lower lows and lower highs).

Next week will be critical, in terms of volume participation and whether or not this recent move will be confirmed with additional strength… or negated and declared a “Bear Trap.”  Try not to get too caught up in your opinions and let price dictate the next likely course of action, however probable or improbable you may feel.

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Corey Rosenbloom
Afraid to Trade.com