The Week in Crayons

Despite ending the week somewhat off their new highs, the markets for the most part continued the slow and relentless rally that began about a month ago. As has been the case during that time, sellers have been few and far between and price action once again occurred on muted volume with relatively little volatility. Not much has changed since last week from a technical perspective and most of the analysis I mentioned in last Friday’s post still stands.

Looking at a chart of the e-mini futures contract for the S&P 500, we can see that we are still in the same narrow rising channel that has contained our rally after breaking out at the start of the year. Price is for the most part in the same range it was in last week except for a failed attempt above 1320 which occurred during the middle of the week off the back of strong eps reports(most notably AAPL). We are now very close to last year’s highs which should serve as a strong magnet for price action as the bulls will eventually try to push price to new highs mirroring the action that has already occurred in the nasdaq composite index.

However, we remain oversold and are beginning to see signs of waning momentum. Notice that we printed a yellow candle on our SG22 momo trend bars on Friday’s close, the first such bar in over a month. This is a hint that upward momentum is slowing down and traders should begin to exercise caution in regards to our current swing up. The first key level to watch if this weakness persists is the 1300 area. This was support last week, and a break below it would also likely take price out of our rising channel. After that, the rising 20 day moving average would likely become the next key area of support which would also coincide with the mid 1280’s which supported price nicely after breaking past our last major pivot high formed in late October. Trader’s should be wary that price dropping into these levels shouldn’t necessarily be seen as a sign to short this market as sellers have been virtually non-existant so far this year and a retracement at this point may end up taking the form of a benign sideways drift instead of a deep price pullback. If price were to remain in our channel and continue squeezing higher, look for the 1340 area to become a major test as we begin to probe last year’s highs.

While this type of slow rise can be frustrating to traders that feel they have not capitalized enough on it can be frustrating, continue to remain patient and wait for the proper setups to appear as we work off our oversold nature very close to some stiff resistance on the longer term charts.

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Posted in Charting & Analysis, Charts, Commentary, Futures, General Trading, Indicators