S&P500: Longer Term Bullish

Technicals | Oct 12 2018

Bottom Line 11/10/18

Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Up
Support Levels: 2692 / 2594 / 2532
Resistance Levels: 2941 (new all time highs)

Technical Discussion

There she blows ! The S&P 500 [Wednesday] night had its worst session since February, losing 94 points or just over 3%. The NASDAQ was even more brutally hit losing just over 4%. Most of the commentary is blaming higher bond yields and rising interest rates. Higher yields means steeper borrowing costs which will affect everyone from larger corporations to your average investor or home owner. These are the consequences of a strong economy though, yet it is just going to be a matter of getting the balance right over the longer haul and not overstepping the mark with hikes being too fast and too soon. Third quarter earnings season is also coming up. So it will be interesting to see whether results continue to reflect the lofty valuations that are presently around on numerous stocks, especially in the tech sector. For now we view this pullback as healthy and potentially a buying opportunity down the track off a consolidation phase that could easily coil and rotate within a larger range over quite a number of months. Difficult trading conditions are likely going to dominate such a process.

Reasons to stay longer term bullish (caution now short to medium term):
→ 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 consistently pushing into new all-time highs 

'In our view a Wave-5 of (3) or a higher degree Wave-(5) move north is what is now in motion'. Our bias has been with the Wave-5 of (3) interpretation which would mean the high point recently locked in at 2941 may well be a higher degree Wave-(3) of [3] completed. This would mean a decent and prolonged higher degree Wave-(4) is now in motion. So we now need to revert our attention to the depth of this move and whether support can come in at any of the pivot points that were part of the recent lower degree Wave-4 ascending triangle formation. These demand points come in at 2692, 2595, 2554 and 2533. The 200 day moving average sits around present levels and is always keenly watched by traders as well. It held together last time yet it is just a matter of seeing whether it is able to do the same during this next round of weakness. Our triangle target has failed to be achieved at 3050, yet what is more important is our risk management, as it should be with any trade. Our stop will always override our opinion as it simply listens to price action and price action alone, and on Monday it very unemotionally took us out of this trade. It now looks like we are back on the roller coaster for a period of time. 

Trading Strategy

Our long recommendation at 2802 was stopped out on Monday for a profit at 2864 . Did we know [Wednesday] night's price action was going to happen ? Well the answer to that is clearly no. As traders it is fine to have an opinion and projections aligned to a strategy, yet at the end of the day no one knows what the markets are going to do from one day to the next. And in regards to when we exit positions, well that job is left solely to our our stop not our opinion. So in this regard, we were taken out of our position on Monday to live to trade another day ! Happy to be back on the sidelines. 

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).

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