Expect Long-Tailed SPX Bullishness To Fade
Alexandros Yfantis | Oct 17, 2014 07:26AM ET
The last two trading days have given several bullish signals and todays pre-market S&P 500 action should not come as a surprise to market participants and certainly it was not a surprise for us. With intraday testing of the 1820-1830 area and successfully holding that support level, it was almost certain that a sequence of higher highs and higher lows could push the index towards cash market levels of 1880 as if it were to open right now.
The daily S&P chart as shown above has managed to stage a strong bounce from the 61.8% retracement of the rise from 1737 low and with two long-tailed daily candles showing intense buying interest and support that is being defended above 1820. The first daily candle made me bullish again and that is why I posted in twitter yesterday that I was going long at 1823 and would add above 1853-1864.
Placed 2 buy stop orders to open long positions when resistance levels where broken. The market then started to move higher and at 1838 I decided to lock my profits and wait to see if the market would break resistance that was close. I decided to close longs and take profits because of the possibility that the index could get rejected below resistance.
Resistance levels broke and I opened new long positions again. Come this morning where SPX futures are 17 points higher and where I decided to take profits on half of my long positions in SPX (and NASDAQ another buy stop I placed to open new long position).
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Earlier today the index back tested support levels near 1857-55 and then broke resistance and yesterday highs. This was a clear signal that we are heading towards 1900 and the first resistance level is at 1880-85 where I decided to liquidate half. I already have closed my longs in Nasdaq and I’m 1 point away from closing half my SPX position.
Below you can see my tweet regarding the NASDAQ buy stop orders I placed. Today I canceled the 2nd order at 3794 and decided to take profits at 3796.75.
In general I remain medium-term bullish as long as SPX cash holds above 1820. First important resistance is found at 1900-1920. I believe we could see a strong pull back at todays open or the pre-market rally is faded back towards the 1860-70 cash levels. A stronger pull back could put in danger the bullish hammer candlestick pattern and the 1820 lows. Breaking below that level I would definitely wait for a push below 1800 and towards 1750.
At 1750 I see the support from the 38% Fibonacci retracement and the lower pitchfork trend line. Breaking below 1820 will most probably push us towards that area. My longer-term view is that this correction is nearly if not already complete. Either we have seen THE important low at 1820 or we should see one final downward spike towards 1780-1750 and then reverse. Key to this scenario will be the reaction of the market once it reaches cash 1900-1925 area.
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