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S&P500: Buy The Dip

Technicals | Dec 20 2017

Bottom Line 19/12/17

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 2405 / 2322 / 2233 / 2187
Resistance Levels: 2695 (all time highs)

Technical Discussion

As you can see from our weekly chart , price action has been in fine form with little in the way of any decent dips since the beginning of 2016. The Santa rally is a seasonal phenomenon which is simply adding extra fuel to an already red hot market. The financial sector especially has remained buoyed in 2017 with interest rates rising and with the expectation that 2018 will be much of the same. Also influencing markets in the U.S at the moment is confirmation that cuts in taxes for U.S businesses will now be imposed in 2018 rather than in 2019 and this is obviously a positive for equities, although just how much of this is already factored in remains to be seen. New highs cannot be argued with though and this is what the S&P 500 is continuing to achieve. 

Reasons to stay longer term bullish (overdue for a medium-term breather):
→ S&P 500 earnings remain well supported overall
→ Elliott Wave count continues to have motive bigger picture
→ retracements have been healthy and well supported to this point
→ price is continuing to push into new all-time highs
→ a pullback is now well overdue

The longer term weekly and monthly charts continue to be well overbought, and the daily chart (not shown) once again has some Type-A bearish to contend with post the most recent swing to the upside. None of this though is seeing the hand brake applied to this powerful upside move, yet we need to be aware that this is clearly a well overstretched market that is going to need to take a healthy breather at some stage. We continue to label this immediate move as a Wave-5 of a higher degree Wave-(3), and when it does finally come to an end, the following higher degree Wave-(4) retracement is going to take a number of months to unfold which will make for difficult trading conditions as part of the process.

The pattern we have also been focussing on is the ending diagonal which should influence a bearish reaction eventually. Price has recently broken clear of the upper boundaries of this pattern which is obviously bullish, so we just need to sit back and see if the move is able to stick. Yet if price drops back into the pattern and then triggers the pattern by dropping below its lower boundaries, then our long awaited pullback will be deemed to have commenced. Price action locked in a very narrow price bar last night which can be viewed as a session that may have had some capping going on, yet realistically it is way too early to be making such an assumption. Worth keeping in the backs of our minds regardless. Overall though it is bullish until price action tells us otherwise !   

Trading Strategy

We maintain that the best trading opportunity from here is going to be on the long side, yet post the long awaited dip. As mentioned this will be part of a likely drawn out higher degree Wave-(4) unfolding which will have the potential to retrace at least 50.0% of the stand out ending diagonal pattern. Happy to remain patient til then.  

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

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