US Stock Markets: Buy S&P 500 on Drop To 2,740

Stock Markets have started to show some signs of stalling in the early parts of this year, and this could indicate the potential for weakness given our proximity to the historical averages. The S&P 500 continues to trade near its record highs but the lack of event drivers over the next several weeks suggests that there is a growing possibility that markets could gravitate sideways to lower over this coming period.

S&P 500 Chart
S&P 500 Chart

In the chart above, we can see that market prices in the SPDR S&P 500 Trust ETF have actually come off sharply and formed a clear to in the 280.10 region.  Given the surge in short-term volatility that we have seen in this area, it would be reasonable to expect that markets will have a difficult pushing through this resistance level on first attempt.  

First support now comes in at 275.60 and a drop back into this price zone will give the short-term indicator readings some time to work off their overbought conditions.  The 200-period exponential moving average on the hourly charts is now rising quickly, and so if we do not see some better follow-through here shortly it looks more than likely that a good portion of the daytrading market will start looking to throw in the towel.

We outline a support and resistance trading strategy outline that resembles the current situation seen in the S&P 500, as the benchmark has moved almost entirely in one direction (upward) over the last year.  Overall, the bias will not be changed unless SPY prices move back below the 200-period EMA on the hourly charts.  This would suggest that a period of consolidation is actually in place and that a more significant top could be forming on the daily charts.  Until then, will look to keep things simple in S&P 500 positions and use support and resistance strategies into the end of this month’s trade.

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