Technical Analysis: S&P 500 Forms Doji Above 2,700; Outlook Remains Bullish

Technical Overview

  • On Tuesday (May 15), S&P 500 opened 0.4% lower and continued sliding until the last half hour of the trading session, reaching an intraday low of 2,702. Once again the 2,700 level served as support and by EOD the index had climbed back up to close at 2,711.
  • Tuesday’s pullback had also halted at the January – March Resistance (resistance-turned-support – orange trendline in Figure 1).
  • On Wednesday, the index filled Tuesday’s down-gap (origin of down-gap – lower purple trendline).
  • Today (May 17), the index formed doji (i.e. same open and close), indicating indecision among market participants. The location of the doji, however, is constructive.

Figure 1. S&P 500 Daily Chart

Key Support Levels:

  • The 2,700 – 2,710 area (green horizontal tredlines)
  • The January – March Resistance is expected to continue serving as support if the index breaks the low of the doji.
  • The intermediate-term support (ITS – violet trendline, currently at 2,628).
  • The 200 SMA (white line, currently at 2,627 – nearly identical as the ITS).

Key Resistance Levels:

  • The 2,715 – 2,742 area (purple horizontal trendlines).
  • The March 13 high at 2,800 (red horizontal trendline).
  • The January 26 high. The entire range from 2,850 to 2,873 is expected to serve as resistance.

Implications

  • Today’s doji appeared after the index had successfully retested key support levels on Tuesday. In addition, given that the index managed to hold above its 8 EMA (yellow line), the doji at these levels points to a consolidation rather than reversal.
  • A break above the May 14 high (upper purple trendline) is expected to result in a swift up-move, with the index retesting the March high soon after.
  • 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 remains above 2,700.
  • Short-term neutral below 2,700 but above the ITS.
  • Bullish thesis will strengthen if the index breaks above 2,800 (March high).
  • Short- and long-term bearish if the index breaks below its ITS.

Featured image courtesy of Shutterstock.

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