S&P500: Breather Due

Technicals | Feb 22 2019

Bottom Line 21/02/19

Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 2550-2500 / 2347 / 2135
Resistance Levels: 2817 / 2941 (new all time highs)

Technical Discussion

The strong monthly gains in the S&P 500 that we have seen in January and February, from an historical perspective, is projecting an overall market advance for 2019 of 20% or more. This neat little statistic has an almost perfect track record. Twenty nine out of thirty years of Jan-Feb gains has ended up seeing the S&P 500 advance 20% or more for the full year. A statistic that has been tracked since 1938. In January alone the Index gained 7.9% which was its best January performance since 1987 ! The Stock Traders Almanac in fact states that when we have a strong January, 87% of the time we end up witnessing a strong yearly gain. A far cry from December's 9% drop which was the worst December recorded since 1931. Lets take a closer look at the technicals. 

Reasons to stay longer term bullish:
→ S&P 500 earnings to date remain well supported (be it some valuations stretched)
→ Elliott Wave count continues to have motive bigger picture
→ retracements have been healthy and well supported to this point
→ Higher degree Wave-[4] may have now locked in a major low ?

'We continue to believe a higher degree Wave-[4] is unfolding here, either having commenced in late January and therefore highly evolved. Or having started at the end of September with this most recent move lower only being the first Wave-A of such a move.' We remain fixated on the higher degree Wave-[3] high option completing in January, with the higher degree Wave-[4] completing as a larger expanded flat back in late December 2018. Yet we are keeping an open mind on the alternate count in red on our chart as well. Both are longer term bullish be it the more preferred count is bullish immediately rather than later on down the track.

The V-shape recovery to this point has been impressive. As you can see we are tracking it as a minor degree 5-wave pattern with the final wave-v also subdividing within itself. This generally means some form of breather could now be close to hand. Especially when combined with the 200 day moving average being in play, resistance just overhead at 2814, plus some pretty narrow price bars surfacing that can sometimes imply capping at these higher levels. Price is also well overbought. A breather would be healthy of course, yet it doesn't mean we are going to get one on command. Markets very rarely comply to investor demand, especially those that feel they have missed the boat off this initial move north.

If we do get an inflection sooner rather than later though, then a retest of the 2550 – 2500 zone would not be out of the question. At the moment though this run higher is as solid as you can get, yet the next week or so is going to be very telling ! 

Trading Strategy

We are riding the commodity freight train north at the moment with our live trades, yet to this point the S&P 500 freight train has refused to stop to allow us to jump on board. Obviously we are keeping an eye out for the aforementioned inflection for us to attempt to work in a trade via a swing trade opportunity, yet who is to say we are going to get it. The scene is set for a breather to take hold around present levels yet for now price action isn't having a bar of it. We will keep it on our radar.  

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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