SPX – Breached But Not Broken

On 4/20, the SPX rally that started at 1810 came to an end at 2111. From that point, the index declined until it reached 2040 — which was mentioned repeatedly as an important support level — found good buying at that level, and rallied to 2085 before reversing again. The next decline continued until last Thursday, but this time did not find support until 2026.  However, by closing the week at 2052, the index again closed well above support. The coming week should give us some important clues about what the market wants to do next. If the current rally is going to match the previous one in time and price, it could end as early as Monday at 2069.  

In fact, this could very well be what happens. As we will see on the daily chart, 2069 is where the rally would meet with resistance at the downtrend line from 2111. Furthermore, it also corresponds to a projection taken across the base which was formed at Thursday’s low. If that does take place, and SPX starts down again, we could go through the 2040 support level decisively this time, and that is what would be required to confirm the formation that was discussed in the last two letters as a possible H&S pattern. It would also provide some clarity about what the index would do next since, a decline below the neckline is usually followed by a return move before the downtrend resumes.  

On the other hand, if this rally extends beyond SPX 2085, it would probably change the path on which the current short-term trend appears to be proceeding, and a re-evaluation of the market’s intention would have to be made.  

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

This chart of the SPX which goes back to the 2135 top shows that, since then, the index has had some wild swings between 1810 and a trend line drawn across the highs, with most of the trading taking place above 2040.  This is why that level is so important as support.  Since we managed to rise above it again after finding support near the low of a wide channel (heavy red lines), SPX is keeping us guessing about whether or not it wants to extend its uptrend to a new high, or if it is ready to decline to the low of the channel once again.