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by Darius Anucauskas

Channel-Trading For S&P 500

After reaching the new all-time high on Friday last week, the S&P 500 started correcting back to the downside. This week, the index found its support near the 2900 hurdle. If the downside pressure remains, we could see that hurdle getting broken and further declines could become a reality. However, as long as the index remains inside the channel, which has been in play since the last days of March, the drop lower could be classed as a short-term correction. That’s why in the short run we will stay with idea of seeing a bit of more correction to the downside, but overall, the trend is still up.

A drop and a close below the psychological 2900 barrier could confirm the case for further retreat and could open the path for the 2865 level, marked by the low of the 7th of September and the high of the 7th of August. We could see a bit of resistance from the bulls around that area, given its significance. If at that point, the bulls are still not able to withstand the bear-pressure, then a drop below 2865 could lead to a test of the lower bound of the aforementioned channel. This is where the bulls could take advantage of the lower price and start picking up the pace, in order to lift the S&P 500 back up, perhaps driving the battle towards the index’s record of 2941, or even higher, into unchartered territories.

Our momentum oscillators, the RSI and the MACD, are somewhat in support of some more retreat. The RSI has now moved back down and is currently aiming for the 50 line. The MACD, even though positive, still, has now moved below its trigger line and is slightly pointing to the downside.

If the sellers will remain strong and eventually the S&P 500 closes below the lower bound of the aforementioned channel and also below the 2845 level, marked by the low of the 22nd August, this could switch the near-term outlook towards the negative side. The index could get hit by strong selling activity, which could lead to a test of the 2790 area, marked by the low of the 2nd of August and also the peak of the 13th of June. Certainly, the bulls could try and fight back a little, but if they fail to hold the index above 2790, the bears could see this as the green light to step in pull the S&P 500 towards the 2740 barrier, marked by the inside swing high of the 3rd of July.

S&P 500 daily chart


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