How To Play The Trading Range? Patience Not Hope.
Come on Tuttle - can't you give us the green light into year end??
"Do not anxiously hope for what is not yet to come; do not vainly regret what is already past."
The S&P could mark its tightest trading range on record depending on the finish of the year
Short term resistance on the SPX stands at 1240 with key longer term resistance at 1260-1270
Massive resistance on the Nasdaq rests at 2240-2250 while at 10700 / 10860 on the INDU
We continue to follow the long term rising wedge (typically a bearish formation). When we break from this formation there will be an opportunity to make money on either the long or short side depending on which way. If the move is to the upside we'll wait for confirmation (low volume retest).
Good morning. Today I wanted to put out a few snippets on the "three sisters" and where they have the highest probability of running into the next probable resistance levels. Before doing so however I wanted to paraphrase a statistic from Jason Roney - a fellow contributor at Minyanville who noted: "If the S&P 500 (SPX) closes the year out in its current range it will be the tightest fluctuation (percentage wise) the SPX has ever seen since its inception - 1963."
I realize this statistic may or may not be important to you depending on your time horizon. However, it does support the theory and bearish technical patterns I've been writing about for quite sometime (namely the long-term rising wedge formation within the markets). We'll revisit this issue at the end of this "Jo."
Let's begin with the most steadfast and accountable sister - the SPX. Today I have posted only a 1-year chart of the SPX while referring to the longer-term trends. To review past discussions of these trends and view in full detail 'the rising wedge' pattern, please review two previous 'Jo's' penned. (Jo #94 and Jo #95)
As you can see the SPX did bounce off the LT (long-term) support just a few short weeks ago and has begun to head back up toward its LT resistance that has been in place since 2004. However, over the last few days it has been struggling with a shorter-term horizontal resistance level at approx. 1240. The most probable scenario is a small consolidation here that could bring the SPX back down to the 50-dma (day moving average) at 1220.
Following, and assuming Santa's sleigh doesn't get caught in a snow storm, this ST (short-term) resistance of 1240 could be breached before year end with a follow-through which could bring the SPX up to the LT resistance of 1260-1270.
Onto the second and more aggressive sister, the Nasdaq (COMP). Once again we can plainly see how she bounced off LT support and began heading for the massive 4-year resistance level of 2240-2250). Here again the technical interpretation follows the first sister's possible ST consolidation and pulls back to fill the gap from 2 weeks ago and coincides with the 50-dma.
The 3rd and oldest sister - the Dow Jones Industrial Average (INDU) - is not as easy to read on a technical basis. With that being said, it is also the least important technically. She looks as if she doesn't have as much room to move, on a percentage basis. Not unlike the SPX, the Dow has also been struggling with some ST resistance at about 10,700 over the last few days. The technical theory stands with the 3rd sister as well. The technical probabilities favor a consolidation back to the 50-dma (10,500) before advancing to another converging resistance point of 10,860 or so.
After reviewing the previous technical studies, please do not be confused with respect to our long-term outlook. The indices are only a few percentage points away from MASSIVE resistance points that have held the markets captive for the last 2 to 4 years. If by some chance, the three sisters join together and break through these resistance lines to the upside, please - PLEASE - wait for a conformation before diving in head first. You'll want to make damn sure there is water in the pool. The confirmation would come in the form of a low volume retest of the current long-term resistance level without breaking back below it.
To come full circle on the discussion, this is the tightest range we have ever witnessed within the markets and when (NOT IF) this rising wedge is broken it should signify a new trend is underway. That being said, their will be plenty of time to make money (long or short) depending on which side the break occurs. Be patient, you don't want to get caught in another "bull trap."
Until next time...
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