What’s inside:
- Market pulling back to start week as anticipated
- Sequence of higher highs, higher lows in jeopardy
- Swing trade from short-side developing
Market pulling back from resistance as anticipated
Yesterday, prior to the cash open the SP 500 came within a couple of handles of the bottom-side of our targeted resistance zone near 2080, and nicked the top-side trend-line on the hourly chart. We went into the day thinking a pullback could develop to start the week. Thus far we are seeing that theme continue to unfold further into today.
Uptrend in jeopardy of breaking down
The SP is currently trading beneath the trend-lines extending back to the March 10 and February 11 swing lows. This doesn’t mean the uptrend is over just yet, but it does open up the possibility and expose Friday’s low at 2043.50, which if broken would market an important break in the sequence of higher highs and higher lows in place since the 2/11 bottom. A lower parallel lies around the Friday low, but at this time we are labeling it a ’2nd degree’ type of support level.
The depth and overlap of the past two retracements in such close proximity to one another shows a market losing momentum. Sellers becoming more aggressive, buyers backing away.
SP 500 Hourly[Daily]
Short-trade developing
The trend is higher, but is quickly coming under fire, at least in the short-run. In recent, trades from both sides of the tape have been kept to very short durations on this end, but at some point in the not-too-distant future a swing trade from the short-side looks likely to materialize. If a lower high develops following a break of the Friday low, or even a lower high from current levels, our conviction level for establishing a short-trade with a hold time longer than a day will increase significantly.
We aren’t looking for the market to fall apart, but a healthy pullback before attempting to move higher looks very likely to take shape relatively soon. Later when it becomes more relevant we will discuss why the next move lower appears more likely to be of the pullback variety versus the beginning of another major turning point for the bears to grab hold of.
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter @PaulRobinsonFX, or email him directly at probinson@fxcm.com.