False Breakout in the S&P 500?
The S&P 500 made new highs above 4800 early this year, but now the move may be looking like a false breakout.
Notice how the rally between December 21 and 27 happened against a backdrop of waning volume. This isn’t a surprise given the Christmas holiday. But then when volume did resume last week, it occurred as price dropped.
Several potential reversal patterns followed the yuletide surge. There was a doji on December 29, outside days on December 30 and January 3, then another doji.
Third, notice how MACD rang in the New Year with a lower high, even as the index made a slightly higher high. That’s potential “bearish divergence.”
Next, SPX returned to its 50-day simple moving average (SMA) less than three weeks after bouncing at that line. Its previous rebound was also close in time. How often can prices test that support before breaking it?
Finally, our MA Test Bars Since script shows that the index has gone 386 sessions without touching its 200-day SMA. It’s not a record but it is long by historical standards. With monetary policy tightening and investors shedding big tech, will traders wait for a deeper pullback toward the 200-day SMA?
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This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
Notice how the rally between December 21 and 27 happened against a backdrop of waning volume. This isn’t a surprise given the Christmas holiday. But then when volume did resume last week, it occurred as price dropped.
Several potential reversal patterns followed the yuletide surge. There was a doji on December 29, outside days on December 30 and January 3, then another doji.
Third, notice how MACD rang in the New Year with a lower high, even as the index made a slightly higher high. That’s potential “bearish divergence.”
Next, SPX returned to its 50-day simple moving average (SMA) less than three weeks after bouncing at that line. Its previous rebound was also close in time. How often can prices test that support before breaking it?
Finally, our MA Test Bars Since script shows that the index has gone 386 sessions without touching its 200-day SMA. It’s not a record but it is long by historical standards. With monetary policy tightening and investors shedding big tech, will traders wait for a deeper pullback toward the 200-day SMA?
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
Important Information
TradingView is not affiliated with TradeStation Securities Inc. or its affiliates. TradeStation Securities, Inc., TradeStation Crypto, Inc., and TradeStation Technologies, Inc. are each wholly owned subsidiaries of TradeStation Group, Inc., all operating, and providing products and services, under the TradeStation brand and trademark. When applying for, or purchasing, accounts, subscriptions, products and services, it is important that you know which company you will be dealing with. Please click here for further important information explaining what this means.
This content is for informational and educational purposes only. This is not a recommendation regarding any investment or investment strategy. Any opinions expressed herein are those of the author and do not represent the views or opinions of TradeStation or any of its affiliates.
Investing involves risks. Past performance, whether actual or indicated by historical tests of strategies, is no guarantee of future performance or success. There is a possibility that you may sustain a loss equal to or greater than your entire investment regardless of which asset class you trade (equities, options, futures, or digital assets); therefore, you should not invest or risk money that you cannot afford to lose. Before trading any asset class, first read the relevant risk disclosure statements on the Important Documents page, found here: https://www.tradestation.com/important-information.
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