The Week in Crayons

The monotony of the endless stair case up in the markets was finally broken this week as price action for the first time in months saw a substantial albeit quick retracement. While most of the selling took place in one day of controlled selling, we bounced throughout the rest of the week and find ourselves very close to the point in which we began the week. However, the one day of true distribution was able to change the technical landscape of most of our major indexes and is likely to be followed by other days of sporadic selling in the next couple of weeks. However, while I have heard some jumpy traders already alluding to a bear market, please realize that we have had a very strong bull market to start this year and the likely bias in the near future is moderately bullish with a neutral bias as we probably need a bit of time to truly consolidate the gains we have made over the last several months.

The nature of our “new” technical landscape is readily apparent when we look at a chart of the e-mini futures for the S&P 500. Tuesday’s red candle easily breached our rising 20 day moving average as well as clearly taking price action out of the narrow rising channel that had contained all price action since the end of last year. While it is certainly possible that price continues to bounce next week and reenter this channel, the more likely scenario is one in which some of these recent areas of resistance and support get retested as both bulls and bears attempt to probe this new price neighborhood.

Our recent highs around 1380 become interesting resistance that will attract considerable attention now that it coincides with the bottom of two recent trendlines. Also, the area around 1340 where dip buyers came in and quickly supported the drop this week will likely become a magnet for price action as bears attempt to push price back down for a more substantial retest of our new lower boundary. If price were to push past this possibly developing channel, the next areas of likely resistance will be around the very big and round numbers of either 1400 on a move up or 1300 on an extended pullback.

While it appears that our narrow stair-stepping bull market rally may be ending at this time, traders should keep in mind that all action to this point has been very strong and a couple of weeks of sideways action would go a long ways towards resetting some extended charts and providing us with many low risk setups.

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