At the end of November we posted an analysis expecting prices to re-test October highs (http://trading2day.com/?p=144). S&P reached 1465 which was only 9 points lower than the recent highs. It is imperative for the bullish trend to continue, prices to stay above 1400. The last upward move from 1398 is a complete 5 wave move. A pull back is expected. Lets look first at the short-term chart of S&P.
Whatever is going to happen next (1500 or 1300), I believe it is certain that a pull back is imminent. As shown above, support is found at the blue trend line (1400-1415).
Zooming out of the chart at the weekly level, the bounce we expected at 1400 gave us almost 70 points. As shown below the green wedge is narrowing. Resistance is found near 1500 and support at 1400-15 area.
Looking at the past reactions of the index when the EMA was crossed, I believe it is more probable that prices first make a new high before breaking downwards. As always action is taken when a break is made or against a support or resistance in order for our stop level to be close by. For example I sold the news regarding the Fiscal cliff at 1460 with a stop at the October highs. Either I’m stopped out or the market pulls back as I expect and try to close it near 1430-40 area and why not try a long trade with 1415 as a stop reverse. My next target will be the upper green wedge line near 1500. Of course if things go the other way (first we visit 1500 and then go down), then I will be protected by my stop orders and try to sell near the 1500 resistance. Although this is a crude way to explain my strategy, intraday movements and the wave patterns that unfold during the next sessions, might alter my strategy. This is just a general roadmap according to my risk profile and customised for me. This does not mean that this strategy is suited for your investment needs.
If you need help trading this index, don’t hesitate to contact me. As always, thank you for taking the time to catch up on my thinking.