S&P 500 continues major recovery

Alan Penny

16 May 2019

3 min read

The S&P 500 rallied rather significantly after initially trading a bit softer in the Globex session. We dug into the previous hammer, dipping below the 50 day EMA, only to turn around and find explosive moves during the day in normal trading.

With that in mind, we are approaching a couple of technical levels that must be recognized. While this has been a nice recovery there are several different things between here and higher pricing that could come into play. Adding more confusion is the fact that not all of them can be found on the chart, or for that matter have anything to do whatsoever with the stock market itself.

Twitter and headlines

Twitter is one of the biggest problems for stock traders these days. Granted, a lot of people will follow trade ideas of other professionals I learned quite a bit, but at the end of the day the President continues to tweet about all things China related, and therefore we never know when the next erratic bit of trading will happen. That being said, we do recognize that he is starting to become somewhat predictable in the sense that if the market falls too far, he will make some type of positive statement.

On the other side of the Pacific Ocean you have the Chinese, which have no qualms whatsoever about releasing bad news. At this point in time, a statement can come out overnight that makes the Globex session rip in one direction or the other. It’s really difficult to say the least and at this point it should be noted that the most important thing you can do is keep your position size rather small.

Technical issues

S&P 500 daily chart

We also have technical issues that we need to worry about. For example, there is the 2900 level just above. Large round psychological significant numbers of course cause issues at times, and there seems to be a lot of order flow around them. Beyond that, we have the previous uptrend line slicing right above the 2900 level and looks likely to be an issue. If we can break above both of those, then we have smooth sailing to the 2950 handle.

To the downside, we have the 50 day EMA which is pictured in red on the chart at the 2861 handle, and that of course the 2800 level which would be supportive as well. I suspect though, if we see some type of exhaustive candle on the daily chart near the 2900 level, that will be viewed by a lot of technicians as a potential “lower high”, which is the beginning of a downtrend. If that happens, 2800 will almost certainly be revisited. A break down below there opens up the floodgates.

The main take away

the main take away from this chart and the action in the market lately is that you should probably be very cautious at this point, because simply put we are starting to see extreme volatility. Yes, the last couple of days have been much better but one would have to believe it wouldn’t take much to get the whole mess started right back up again. Keep your position size small, and keep an eye on the levels mentioned in this article.

Written By
Alan Penny

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