SPX Approaches a Confluence of Resistance Levels at 3850
Updated
Primary Chart: Fibonacci Levels, Symmetrical Triangle Broken in September 2021, Anchored VWAP , and Downtrend Line
On September 21, 2022, SPX's had a breakout to the downside from a multi-month symmetrical triangle pattern. This pattern was discussed in a post prior to the breakout.
But when price breaks out of technical patterns, price sometimes tends to backtest or retrace back to the very same pattern that led to the breakout. In other words, the breakout occurs with a directional move in earnest only to reverse and retrace back to the pattern or level that price had broken. In the case of SPX's symmetrical triangle, it appears that a retracement to backtest this triangle's trendline can reasonably be expected. The powerful bounce of the YTD low at 3584.13 appears to have begun with two consecutive rally days with very strong breadth readings.
Furthermore, important technical levels can often draw price in like a magnet when price starts moving in their vicinity. A confluence of important levels arise in the area around 3850 SPX. Such levels are shown on the Primary Chart above. They include the following:
A few other Fibonacci levels are shown on the intraday price chart below. They show similar levels to the levels discussed above, with a lower level at SPX 3819.57, which is the 1.272 Fibonacci projection of the first leg of the rally off the September 30, 2022, low, as projected from the start of the second leg of the same rally. This chart also another level at 3859.09, which is the 1.618 Fibonacci projection using the same starting and ending points as the 1.272 projection.
Supplementary Chart A: Fibonacci Projections from within Current Rally Off Lows
Price may pull back a bit before reaching these targets to consolidate the impressive gains from the past two days. An intraday divergence has already appeared on the 30-minute RSI for SPX. This divergence could easily be erased. Or a further divergences could appear as price pushes a bit higher before consolidating some of the past week's gains.
Supplementary Chart B: RSI for SPX on 30-Minute Chart
What happens next? Breadth had gotten extremely poor at the lows last month. The percentage of SPX stocks below their 20-day moving average was at similar lows to June 2022 and March 2020. The blue rectangle on the chart below shows how only three negative breadth readings have approached that area in the past 2.5 years: March 2020 lows, June 2022 lows, and September 2022 lows. See Supplementary Chart C.
Supplementary Chart C: Extremely Negative Breadth Readings from September 2022 Compared to June 2022 and March 2022 Breadth Readings
However, the trend in equity indices remains downward, and until the structure changes, the odds favor trend continuation over trend reversal. But a continuation of the rally makes sense at least in the short term. And the levels discussed can be watched, and as each level is reclaimed, the next level or set of levels can be evaluated.
Lastly, the 34-day EMA was discussed earlier in this post but was not shown on the Primary Chart. It appears below. As each day passes, this value could change to some extent.
Supplementary Chart D: 34-Day EMA at SPX 3870 as of October 4, 2022
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Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
On September 21, 2022, SPX's had a breakout to the downside from a multi-month symmetrical triangle pattern. This pattern was discussed in a post prior to the breakout.
But when price breaks out of technical patterns, price sometimes tends to backtest or retrace back to the very same pattern that led to the breakout. In other words, the breakout occurs with a directional move in earnest only to reverse and retrace back to the pattern or level that price had broken. In the case of SPX's symmetrical triangle, it appears that a retracement to backtest this triangle's trendline can reasonably be expected. The powerful bounce of the YTD low at 3584.13 appears to have begun with two consecutive rally days with very strong breadth readings.
Furthermore, important technical levels can often draw price in like a magnet when price starts moving in their vicinity. A confluence of important levels arise in the area around 3850 SPX. Such levels are shown on the Primary Chart above. They include the following:
- VWAP anchored to the lows of the pandemic crash in March 2020, which currently is at SPX 3856.64
- Fibonacci retracement levels at SPX 3851, 3867, 3899, and if price can exceed those levels on a close, 3914.85
- major resistance zone that has served as both support and resistance since June 2022 at SPX 3885 to 3920
- upward trendline from June 2022 lows that also served as the lower trendline of a symmetrical triangle with price at 3830-3860 over the next 5-8 trading days
- downward trendline from August 16, 2022, swing highs that run right through this confluence zone in the next week or so
- 34-day EMA at 3870 as of October 4, 2022, which is shown on Supplementary Chart D at the end of this post
A few other Fibonacci levels are shown on the intraday price chart below. They show similar levels to the levels discussed above, with a lower level at SPX 3819.57, which is the 1.272 Fibonacci projection of the first leg of the rally off the September 30, 2022, low, as projected from the start of the second leg of the same rally. This chart also another level at 3859.09, which is the 1.618 Fibonacci projection using the same starting and ending points as the 1.272 projection.
Supplementary Chart A: Fibonacci Projections from within Current Rally Off Lows
Price may pull back a bit before reaching these targets to consolidate the impressive gains from the past two days. An intraday divergence has already appeared on the 30-minute RSI for SPX. This divergence could easily be erased. Or a further divergences could appear as price pushes a bit higher before consolidating some of the past week's gains.
Supplementary Chart B: RSI for SPX on 30-Minute Chart
What happens next? Breadth had gotten extremely poor at the lows last month. The percentage of SPX stocks below their 20-day moving average was at similar lows to June 2022 and March 2020. The blue rectangle on the chart below shows how only three negative breadth readings have approached that area in the past 2.5 years: March 2020 lows, June 2022 lows, and September 2022 lows. See Supplementary Chart C.
Supplementary Chart C: Extremely Negative Breadth Readings from September 2022 Compared to June 2022 and March 2022 Breadth Readings
However, the trend in equity indices remains downward, and until the structure changes, the odds favor trend continuation over trend reversal. But a continuation of the rally makes sense at least in the short term. And the levels discussed can be watched, and as each level is reclaimed, the next level or set of levels can be evaluated.
Lastly, the 34-day EMA was discussed earlier in this post but was not shown on the Primary Chart. It appears below. As each day passes, this value could change to some extent.
Supplementary Chart D: 34-Day EMA at SPX 3870 as of October 4, 2022
________________________________________
Author's Comments:
(1) Thank you for reviewing this post and considering its charts and analysis. The author welcomes comments, discussion and debate in the comment section. Shared charts are especially helpful to support any opposing or alternative view.
(2) This technical-analysis view does not constitute a trade recommendation or trade setup. Instead, it attempts to offer technical commentary that describes and analyzes price levels, trends, price action, or the broader technical environment as of the publication date. Technical-analysis commentary does not equate to trade setups or recommendations. Within a given price environment, traders bear responsibility for their own trading strategy, risk tolerance, and time frame, and for any due diligence associated with such trades.
(3) This technical-analysis viewpoint could change at a moment's notice, e.g., when price violates a key level of invalidation for a particular view. Further, proper risk-management techniques are vital to trading success.
(4) To the extent countertrend price moves are discussed, consider that countertrend or mean-reversion trading, e.g., trading a rally in a bear market, remains higher risk and lower probability even for the most experienced traders and investors.
DISCLAIMER: This post contains commentary published solely for educational and informational purposes. This post's content (and any content available through links in this post) and its views do not constitute financial advice or an investment or trading recommendation, and they do not account for readers' personal financial circumstances, or their investing or trading objectives, time frame, and risk tolerance. Readers should perform their own due diligence, and consult a qualified / licensed financial adviser or other financial or investment professional before entering any trade, investment or other transaction.
Note
As discussed yesterday, price is pulling back a bit to consolidate the sharp upward move off the September 30 lows.
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