S&P 500 update: Still fluctuating around the 2703 major support area, this market is in a tight consolidation. And the triangle formation that price is building can be considered a sign of overall strength since these are often trend continuation patterns. It is the short term movements that must be carefully considered because the most potential is isolated within a particular price area. In other words, this market is going nowhere fast until a break out occurs. And buying near the highs of the break out is the trade with the lowest probability and potential.
Fluctuating: Good At Attractive Locations Only
When a market like this is fluctuating, it is often waiting for something. A political or economic event that participants are very uncertain about and waiting for more clarity. FOMC meetings can have this effect and so can something like Non Farm Payrolls which is released tomorrow at 8:30 AM EST.
Getting involved in the S&P while prices are in the middle or near the highs of a small consolidation is a high risk thing to do. Even if you “feel” the upcoming report is going to be “good”, there is no way to predict how the market will react. “Good” may not be good enough when perceived by the market and a sell off ensues to everyone’s surprise.
Even though the market may appear “hot” with the S&P up 20 points, it is actually going nowhere. Do not get sucked into a fluctuating market that is closer to a resistance than a support. Instead, wait for more attractive levels. That is our plan.
Best Levels For Adjustments
2703 is the broad .382 support level that is relative to the 2552 low made in April. I have been writing about this area for some time and you can read a recent report here.
And so far, this market has bounced off of it 3 times while establishing a new trend line low. 2703 or slightly below into the 2690s is the short term location to consider increasing your stock inventory. This can be accomplished by selling puts, buying shares outright, buying ETFs or even futures.
Keep in mind, this is not an area to build aggressively. Even though this market is poised to continue higher, the low 3Ks in the broader target. If this market can test those levels by the fourth quarter, we will be talking about locking in profits in general. While bullish potential is decent from the 2703 level, it is much less compared to if you started building your inventory at the 2016 lows.
If The Support Breaks
We advocate being prepared for anything. If the small consolidation around 2703 is broken to the bear side, price can go as low as 2646 and still be in a healthy position to reverse higher. Any reversal formations in this area would also be a good time for inventory building.
If a scenario like this unfolds, most likely news or fundamental surprises will be driving that kind of order flow. Remember, it is not what they say that counts, it is all about how price behaves. You have to be willing to trust price over the credible news outlets and “experts” that you trust on TV. The most honest view of any market is reflected in the price action.
The Summer Rally Continues
Price action is still in line with our summer rally scenario that we have been writing about since May. This means prices are more likely to break resistances and hold supports as it slowly climbs through the 2746 to 2804 resistance zone (.618 of recent bearish structure).
The least beneficial thing you can do is build inventory above the 2746 resistance. Even though we are bullish, the price area below 2760 is a high probability bearish reversal zone.
Overall, while this market is not at an attractive price at the moment, that does not mean it may not test one tomorrow (after NFP) or next week. Opportunities in financial markets are scenarios to wait and prepare for like waiting for a train or a bus. Reacting to news or emotional price action leads to nothing but random outcomes which are often not skewed in your favor.
Now is the time to decide how you will capitalize on the next opportunity and prepare for it. Are you going to sell puts? Buy shares? Buy an ETF or futures contract outright? Which ones and why? We help you answer these questions by sharing our portfolio pages (here) and adjustments that we make. They are still available free so check them out.
Questions and comments welcome.