The following is just a small excerpt from my latest Weekly Strategy Session (please click on that hyperlink for details about trying it out). which I published for members and 12631 subscribers this past Sunday.
Despite the rally we saw two Friday’s ago, in addition to the modest gap higher last Monday, the S&P 500 Index daily chart is respecting the bearish rising wedge breakdown. Recall that our first level against which to trade longs was the 20-day moving average (orange line), given the valiant effort bulls put up at that reference point two weeks ago when the rising wedge (purple lines) resolved lower. As you can see, that 20-day had been lost by week’s end.
Given the subsequent weakness after Monday’s open, traders should generally respect the rising wedge as the controlling pattern on this timeframe, at least until the 20-day moving average is recaptured to the upside on a daily closing basis. Also recall that the next major level we were observing after the 20-day moving average was 1746, the breakout level from the multi-quarter rising channel (light blue lines), which held on a backtest in early-November.
Hence, with the 20-day moving average lost, but price still holding above 1746, the market is in a state of flux headed into this week. To be sure, actionable long ideas are present, discussed later in this Strategy Session.
But, overall, some minor technical damage has been seen with the rising wedge breaking down and then making a lower high last Monday. Traders should continue to temper their expectations for long breakout plays, as a general rule, unless and until bulls can recapture that 20-day.
On the 30-minute timeframe of the S&P 500, it is also worth noting that 1772 is shaping up to be the bulls’ best chance at preventing a test of the rising channel (light blue line, seen below) breakout point. You can see how 1772, denoted by the horizontal yellow line, was resistance and is now trying to turn into support.
In my view, bulls must hold this level, as I would view another retest of the 1746 breakout point as ominous and quite vulnerable to falling back inside the channel, or worse.
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