Thursday, March 30, 2023

S&P 500: What Can Stop The Rally To 4000?


Over the past several weeks, I have kept you abreast of how the was setting up for a rally to SPX 4000. Last week, it broke out from SPX 3590 +/-5p resistance, and now it is has added another 35p to its tally. That is only 0.1%, but up is up: see Figure 1.

From a technical analysis point of view, on Monday, the index back-tested A) the triangle pattern breakout; B) horizontal support; and C) the 10-day Simple Moving Average (SMA): it dropped to as low as SPX 3594 and then rallied.

On Tuesday, it then gapped above final resistance at SPX 3645, which then turned into support. Yesterday it then backtested the SPX 3645 support level successfully. And today it made, once again, and so far- a higher high and higher low. All of this is still normal and technically sound market behavior.

Figure 1:

SPX Chart.

Besides, the index is above its rising 10d, 20d, 50d, and 200d SMA (small green arrows), which in turn are bullishly stacked, meaning the 10d>20d>50d>200d. Thus, the index is in short- to long-term uptrends. When price and the SMAs are aligned like this, any instrument is then in a 100% bullish market. As such, one must wear a bullish hat until that changes. So, what needs to change for the index to turn bearish?

  1. Close back below SPX 3645
  2. Close back below SPX 3590

That will turn the trend short-term down as then the index is trading below its 10d and 20d SMA. But even then, the intermediate- and long-term trends are still intact, and the next levels to watch are SPX 3485 (where the 50d SMA now is at) and SPX 3415. If this last level goes, then there is a big air pocket down to the 200d SMA. For now, I prefer to see the SPX3590 level to hold from current levels, and on any pullback, to keep the bullish trend to SPX4000+ intact.

Thus, from a relatively simple technical analysis perspective, the bulls have many buffers before this market turns on them. As a trader, one can use these price levels as stops to either minimize losses or protect profits depending on entry-level and trading timeframe. That is the only sound way to go about when approaching the markets. Hope is not a strategy.

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