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S&P 500: Range Finally Breaks, Now What?

What’s inside:

In yesterday’s commentary, “SP 500: Fake-out Breakout Could Spell Trouble”, we looked at the false breakout of the historically tight trading range and subsequent drop back inside of the range as a precursor for a breakdown below the bottom of the range.

The trading day on Tuesday started out quiet. At the opening bell the SP 500 (FXCM: SPX500) was down a single handle, sitting in the middle of the range – nothing to get excited about. But then just a couple of hours later sellers had emerged and the market was down about 20 handles lower, well below the bottom-side of the range.

A rally in the afternoon of the US session took the SP back into the bottom-side of the range, but has since turned lower, forging the low-end of the range as old support turned new resistance. As long as the market views the 2155/60 area this way, so shall we. We have been discussing reasons why we believed an eventual down-side resolution would take hold (See yesterday’s piece for further details.), and now price action is beginning to confirm our logic.

As long as 2155/60 stays in place as resistance, then the path of least resistance is lower with 2137 and 2127 as our short-term targets. However, should the SP rally back into the middle of the recent range we won’t necessarily view it as a bullish event, but at the least we will likely turn neutral until further clarity.

Samp;P 500: Range Finally Breaks, Now What?

Find out what separates the best from the rest in our guide, ‘Traits of Successful Traders’.

—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX.

He can be emailed at probinson@fxcm.com with any questions or comments.

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