The S&P closed at 996 yesterday (so much for that big 992 resistance line LOL), so futures were up for most of the overnight. This screenshot is a 20 min-delay chart - a not-favorable unempolyment report at 8:30 washed away all the gains, so expect a mixed to lower opening.
There was a key mini-reversal yesterday right after the opening that completely changed the tenor of the market - let's take a look:
S&P 500 - 15 Min Chart - 4 Days
Let's go back first on this chart to Monday morning (the 17th) where the price gapped down to start the session, moved all the way down to find support at 980 and then gradually drifted back up to 990. Basically no follow-through from the bears - they're still at the beach.
Yesterday morning (the 19th), the S&P again gapped down at the open, and again went back down to 980 (is 980 the new 992?) although this time it immediately reversed and started back up again (red circle on the chart) and ended up plowing straight through my important 992 line like a hot knife through buttah. What's going on?
Firstly, I want to discuss those kinds of reversals a little bit - any time you have momentum in one direction that turns-on-a-dime the way yesterday's opening price action did, should be paid attention to - that momentum shift should be very tradeable, at least for short-term trades if one is observant and nimble. Whenever there is momentum in one direction that is stopped and reversed with momentum in another direction, that second momentum has to be pretty strong and should be paid attention to. You know the expression about how hard and slow it is to turn an ocean liner (or a battleship or one of those big boats) - so imagine the energy involved in turning the entire market from momentum in one direction to momentum in the other. Put that energy to use and make money with it! Always keep an eye out for those type of reversals. Some of my biggest gains last fall during the plunge came about with during exactly these types of reversals.
Ok - so now where do we go from here? Is the new downtrend already over? Have the bulls come back in force? Not so quickly....
First, let's do a quick review of what defines a trend - an uptrend is equities making higher highs and higher lows, and if new highs aren't being made, it's ok as long as new lower lows aren't being made. A downtrend is lower highs and lower lows (obviously), and if new lows aren't being made, it's ok as long as new highs aren't being made.
So let's look at another chart to illustrate what's been going on:
S&P 500 - 30 Min Chart - 20 Days
Look at each pivot area (I know I use the word "pivot" quite a bit - it's the price bar where direction changes - that first price bar yesterday morning was a pivot, for example) - up until the Aug 6 high, prices definitely acted as if in an uptrend - higher highs, higher lows, etc. And after Aug 6, the highs started getting lower, the lows started getting lower. So far so good.
Nothing that happened yesterday changed that. The S&P reached 999 (resistance at 1000?) and finished at 996. The last pivot point that it would have to breach on the upside to change the trend is either at that 1012 high on the 13th or that little bit of a spike at 1004 at the close on the 14th (last Friday). I tend not to think of the 1004 spike as a pivot because it didn't make prices really change direction at all, but still maybe technically it is - we'll have to appeal to the judges for a ruling on that.
Anyway, for a trend change to happen to the upside, yesterday's reversal would have to now carry the S&P up above 1004 or 1012. So if that does happen, does that mean that we should jump back into the long side? I don't know.... to me the current bias and momentum is still going to favor the downside. And that also puts the S&P right in the midst of the Valley of Death (1007 Nov resistance - 1014 Fibonacci 38.2 Retracement).
Maybe the market is making another attempt at 1014. Look at the price action on the left hand side of the 20 Day chart - specifically from the 22d through the 30th. There were 4 separate tries at 980 resistance that failed. Then the market backed off a little bit, gathered momentum, and plunged through on the 5th try. Now look where we are in relation to 1014 - 4 separate failed tries - now the market has backed off a little bit, is gathering momentum, and....
We'll see, won't we?
So I wouldn't necessarily abandon the bear side yet, and I wouldn't move into the bull side until the Valley of Death is successfully crossed and 1014 is breached. And, if prices back off again, what will happen at 992? Will that kick in as good support again or are we going to have to go all the way back down to 980? Fascinating.
So that's where we are. Good luck!