Technicals | May 14 2018
Bottom Line 11/05/18
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 2532 / 2405 / 2322
Resistance Levels: 2802 / 2873 (all time highs)
Technical Discussion
Well here we are now at a very important juncture. After the very high volatility and market gyrations and unpredictability that has been in play from late January through to the end of March, the S&P 500 has taken a couple of chill pills and completely quietened down. Walls Street's fear gauge the VIX Volatility Index has settled back down to be in the sub 14 region after flying up to over 35 at different stages over the past couple of months. So the strong fear that was associated with the high volume drops in late January and February has now become more subdued. Interesting times indeed and it has bought to the fore our more shallow type triangle pattern which we have now put in a formal trade recommendation on the long side yesterday.
Even though this pattern is now starting to look very promising, we are continuing to maintain a great deal of caution here, especially as the trading environment we have been in for some time now has been dominated by pattern fake outs that have frequently lured traders into a false sense of security. Only to spit them back out the other side post strong reversals. Lets take a look at the technicals.
Reasons to stay longer term bullish (medium term breather remains in play):
→ 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 has been pushing into new all-time highs
→ corrective trigger formally commenced on 29th January
'Our two higher degree Wave-(4) scenarios remain in play. The first is a shallow coiling process aligned to the symmetrical triangle. The second aligns a deeper move south down to the typical Wave-(4) 23.6% – 38.2% retracement zone. These numbers come in at 2445 and 2185 respectively.' Ok so even though both these scenarios remain in play, the triangle pattern is clearly front and centre right at this juncture. Especially with price volatility now having exited stage right ! It doesn't mean it wont return of course, yet all we can do is manage what is in front of us. And right at this juncture a breakout to the upside more immediately, rather than seeing our deeper end targets being challenged, is now very possible.
Our triangle breakout is above the Wave-(d) high at 2717. Yet where we could get caught out on here is whether the wave-(d) high has actually locked in yet. It means we could get punished by taking the trade too early. I don't have a crystal ball, yet what I do know is that price is real, and the price pattern on the chart that sits before us right now is also very real. And has some solid upside potential attached to it if we get our timing correct. The triangle target post breakout projects 3057. We are clearly at a very interesting juncture right here.
Trading Strategy
We now have a BUY recommendation in place for the S&P 500 at 2718 with stops in place at 2552. We have stated some concerns about the analysis in our technical section above, especially in relation to whether the wave-(d) high has already locked into place or not. It's a very relevant concern as the wave-(d) with these patterns is always the trade trigger point. So if we have this positioned incorrectly, price action may well duly punish us? On the flip side this is not the type of pattern we ever want to miss out on trading, as they are generally defined as low risk / high reward combined with having high probability outcomes. Good luck.
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