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S&P 500 Heading Into Major Resistance and Trade Region


The S&P 500 has rallied strongly after hitting a low of 1823. The December E-mini (ES) contract is about to face its most significant challenge yet though: 2082.5 to 2095.5. Not a big price area by long-term standards, but how the S&P 500 reacts to this region gives major clues as to the long-term trend.

This area is important for one primary reason--it was the price range of the last bar before the big selloff started on August 19. This region hasn't been touched since then, and markets have a tendency to retrace to areas like this following a big move. The massive January rally in the Swiss Franc was a prior example. The Swiss Franc retraced the entire move and then bounced off the point that started it all. The question is whether the S&P 500 will respect the starting point of its decline.

 

Weakness just below 2082.5 to 2095.5, or in that region, can be viewed as a longer-term (or short-term) shorting opportunity. Control risk with a stop loss. The safest location is above the 2118.5 May high, but that much room isn't likely needed. Above 2105 should likely suffice. If shorting ideally wait for the price to consolidate--either on the daily or 4-hour chart--and then trade a break of that consolidation to the downside (if it occurs). Once that occurs, a stop loss could be placed just above the consolidation high.

If the price breaks through that region and reclaims the 2118.5 high, the bias shifts back to neutral, and possibly even bullish. Even though the price has rallied aggressively recently, the move down is still bigger, so the bias is down currently. If the price rallies to the May high though then traders may want to sit on the sidelines and see what the next price wave does. That scenario will be considered when, and if, it occurs.

 

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