Technical Update: S&P 500 Confirms Bullish Outlook

Yesterday (May 9), the NASDAQ’s short-term outlook shifted to bullish. Earlier, on Tuesday, the DJIA was on the verge of breaking above several key resistance levels – levels, which were all broken to the upside the following day (yellow and orange trendlines in Figure 1 and blue trendline in Figure 2). Today, the S&P 500 provided further indication that U.S. indices are headed higher in the short- to intermediate-term.

Figure 1. DJIA Daily Chart

Figure 2. DJIA Daily Chart

 Technical Overview

  • Today (May 10), S&P 500 broke above its January – March resistance (orange trendline in Figure 3).
  • Also, the index broke above its April high and the origin of the sharp decline in mid-March (yellow trendline – just above the 2,700 level).
  • Major support levels:
    • The two broken resistance levels are now expected to serve as support (i.e. yellow and orange trendlines).
    • The ITS, currently at 2,622
    • The 200 SMA (white line, currently at 2,620 – nearly identical as the ITS).
  • Major resistance levels:
    • The March 13 high at 2,800
    • The January 26 high. The entire range from 2,850 to 2,873 is expected to serve as resistance.

Figure 3. S&P 500 Daily Chart

Implications

  • The index is expected to retest at least 2,800 before the occurrence of any significant pullback.
  • For the first time since the February correction ensued, there are enough bullish technical developments that point to a potential break of January’s high.
  • Long positions in index-tracking ETFs and constituents recommended.
  • A break of the ITS on a closing basis at any point should take precedence over any other technical developments (i.e. a break below the ITS will negate any bullish outlook).

Outlook           

  • Short-term bullish as long as the index is trading above its ITS but below its March high. 
  • Bullish thesis will strengthen if the index breaks above its March high.
  • Short- and long-term bearish if the index breaks below its ITS.

Featured image courtesy of Shutterstock.

Author:
http://www.linkedin.com/in/konstantindimov