What’s inside:
- The SP 500 blasts through neckline
- Finds support around pre-Brexit highs
- Large reflex rally puts daily chart into question, environment favors nimble day-traders
On Friday, we discussed the potential for the SP 500 (FXCM: SPX500) to roll over from a ‘head-and-shoulders’ pattern following the lower high on Thursday. Indeed, the market did a little more than just ‘roll over’, leaving an entry from the short-side on the neck-line break for only those willing to step in on the intra-day time-frame. By Friday’s end, the SP was already trading below the old record high at 2137 and pre-Brexit peak at 2127.
Yesterday, the small gap lower was bought aggressively from the start of the cash session and the market never really looked back. A recovery from Friday’s swoon was not the unexpected part, it was the extent. A smallish bounce would have left us with a feeling of more to go, but the strong reflex rally brings that into question and makes the short-term a little less clear.
If the SP starts to fade back towards yesterday’s low, we will want to pay attention to how it reacts to determine if it is a retest or likely to be another leg lower. Even on a break through the lows at 2108 the trend-line off the 2/11 retest low will come quickly into view.
A push higher from here without seeing a dive back lower will bring the lower parallel into play which kept the SP pointed higher from mid-July and then not far above a thicket of levels from around 2185 up to the record high at 2194.
For now, the higher volatility environment favors nimble day-traders until we can gain further clarity off the daily chart.
Find out what separates profitable traders from the rest in our free trading 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.