Lots of ‘experts’ are calling for a market crash but I don’t know of any traders who’ve had long term success following the ‘experts so what do the charts say? SPX had a strong rally in the final hour of trading on Friday but still ended the week down about 200 points. The Friday afternoon rally happened near some important support levels which very well could mark an important and lasting low…or not, nobody knows. So how am I trading it?
The chart below is a close-up view of the SPX daily. Friday’s daily candle is a potential bull reversal. Yes, I know it’s a red candle which could just as easily be construed as a bearish candle but price has already been in a downtrend on daily/weekly/monthly/yearly time frames so my portfolio already has a bearish bias. I need to know when that trend maybe changing! I’m going to see a trend change on the daily before it shows up on the longer term charts! The key support level on Monday is SPX 3677-87. That is the 50%-61.8% Fib retracement of Friday’s 3647-3727 price range. IF the long lower wick on Friday’s daily candle is the beginning of a bullish reversal THEN price should find support at 3677 or higher. It would then be expected to exceed Friday’s 3727 high. Those are extremely important levels as I watch the price action for clues to the next move.
To summarize: SPX 3677-87 is the bull/bear line for Monday’s trading. Below 3677 should next target Friday’s 3647 low where the next bull/bear battle happens. A breakdown below Friday’s low would indicate bearish continuation to lower prices! IF price finds support at 3677 or higher it should then proceed to takeout Friday’s 3727 high. A failed move above that high would then target back to the 3677-87 Fib support zone.
What if SPX finds support and exceeds Friday’s high. Then where? That’s where the weekly chart comes into play. Below is the daily chart but I’ve brought the Fib resistance zone over from the weekly chart. That adds more context to the daily chart. So IF price finds support at or above the Fib support zone from Friday’s daily range and IF price exceeds Friday’s high THEN I expect price to attempt a move to the 3777-3807 Fib resistance zone from last week.
The most important thing to remember about trading price levels is that if a price break above an important level is bullish then a failed breakout must be bearish. The opposite is also true. Do not lock-in on a directional price bias! Identify key levels, determine your stop level and stay disciplined!