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Jason Haver: How Will Equities React to This Long-Term Resistance Zone?


The monthly charts reveal that equities are challenging a long-term trend line.

The S&P 500 (INDEXSP:.INX) made new all-time-highs since the last update, thereby invalidating the preferred count. On the plus side, we were looking for a bottom when the market bottomed, and the new highs weren't too far past the upside target zone -- so things could have been worse, and there were only about 10-14 points of "whoops" involved.

Interesting to note that the S&P 500 seems to be leading many of the major indices these days.  The Dow Jones Industrial Average (INDEXDJX:.DJI) has not yet made new all-time highs.  And the Russell 2000 (INDEXRUSSELL:RUT), Nasdaq Composite (INDEXNASDAQ:.IXIC), Philadelphia Bank Index (INDEXSP:BKX), et al, are all still trading well below their respective all-time-highs.

Before we look at the intraday charts, let's take a look at a long-term monthly chart of the S&P 500.  This chart notes an interesting long-term resistance line, which SPX is bumping into again:

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On the two-hour chart, we can see that the red trend line I've talked about since March is essentially the same trend line shown on the monthly chart above:

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The Dow's chart argues that the current rally should probably be viewed as, at best, a fifth wave, and that may bode poorly for the market's chances at clearing long-term resistance on this attempt.  Also, while the black count is labeled as the "or" count, at this point it should probably be viewed as (at least) equal in odds to the blue count.

Click to enlarge
In conclusion, while SPX has broken though near-term resistance, it is still within a very-long-term resistance zone, so it will be interesting to see how it reacts to that.  Support doesn't always support, and resistance doesn't always resist -- if anything worked every time, then trading would be the easiest job on the planet.  But more times than not, the market does indeed react to support and resistance, so bulls should probably stay on their toes heading forward. Conversely, in the event that the S&P and the Dow can power through long-term resistance and turn it into support, then this could become a trend-followers market again. Trade safe.
Follow me on Twitter while I try to figure out exactly how to make practical use of it: @PretzelLogic.

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No positions in stocks mentioned.
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