S&P 500 - 15 Minute Chart - 7 Days
After 3 futile attempts, the S&P is backing off of its attempts to push past the Fibonacci 38.2 Retracement line of 1014 and has now retreated below 1000 again. As the above chart shows, since a gap up at the open to start the month on Aug 3, it's traded in a fairly narrow trading band from 992 to 1014 (there was that one intraday spike to 1018 - but it lasted all of about 60 minutes).
Let's review for a second what makes a trend. An uptrend is generally defined by higher highs and higher lows - a downtrend is generally defined by lower highs and lower lows. In an uptrend, you don't necessarily expect each price bar to constantly setting a new high on each print - but the uptrend will stay intact so long as the price bar doesn't create a new low. And vice versa for a downtrend. Once that new low is created, the uptrend is finished - once a new high is created, a downtrend is ended.
So that's why 992 is so important right now. It's been tested 3 times now and held. A move below 992 creates a new low and ends the uptrend.
As an aside, if you are fairly new to chart reading, I hope you'll notice that the number 3 is a pretty important number. As you look at charts notice that a lot of things happen in 3's. Look at the chart above - since we've been above 992, there have been 3 separate upward moves. The last upward move failed at 1014 3 separate times. A head-and-shoulders consists of 3 separate thrusts also, etc., etc. The more you look at charts the more you'll recognize this. Keep this in mind as you're looking.
There isn't any rule that says that things have to change after 3 failed attempts, but in my experience it happens often enough to be aware of. 3 attempts to break through 992 going down, 3 failed attempts to break through 1014 going up. I think that means that something is going to give this time - if 992 is tested going down, I don't think it will hold. If 992 isn't tested and the S&P moves up again, I would expect that a new try at 1014 might be successful.
If 992 support doesn't hold, the uptrend is ended - but with important resistance at the 980 level, it doesn't necessarily mean that a new big downtrend has started (just as moving above 1000 with 1007 and 1014 right overhead offering immediate strong resistance didn't signal the start of a strong new uptrend). Once that main support/resistance area is broken, it's generally a good idea to see what happens at the next support/resistance area before commiting yourself to the new trend. Accordingly I will get out of FAS once 992 is broken, but I won't enter into FAZ unless and until 980 also falls. Nothing is a sure thing - don't anticipate and trade too early, because you may get burned - there's no rule that says that support at 992 necessarily can't hold again. Wait for the market and the charts to tell you what to do and when.
I hate to keep playing Cassandra or the boy who cried wolf, but the fact that there was strong resistance which corresponded to an important Fib Retracement point and the S&P is pulling back after a bunch of failed attempts, coupled with the lousy MACD-H and volume readings makes me think that this may very well be the start of the downtrend that we've been waiting on for months, rather than just a temporary pullback.
Remember all the bull excitement just a few days ago after the Fed announcement? We were pretty much almost out of the recession, etc., etc. It didn't quite incite a big lasting market rally, did it? In just a few days, that might be nothing more than a brief memory.
Back to the salt mines for me. Good luck!