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Aaron Lynch Getting abroad has a wonderful way of adjusting your perception across many facets of life. However, one of the things I enjoy most about travelling is, in other countries we get to look at the markets in a different light. The Australian mainstream media reporting on the big three indices in the USA can often be a case of what the Dow and Nasdaq has done and a quick update on the S&P 500 with little commentary. The case is much different in my current location; the S&P 500 forms a large part of financial discussion and debate.
The S&P 500 futures contract SP-SPOTV can give a good lead to the broader sentiment of the US markets. The Dow Jones is a snapshot of only the top 30 companies and therefore can be a little insular in volatile times. The top 500 may give a more balanced view when looking for direction and the NASDAQ is centred around technology companies and misses the impact of say, the energy market.
To trade the S&P 500 you need to head to the CME - Chicago Mercantile Exchange and be warned the full contract can be a heavily leveraged tool with each full point worth $250 USD per contract and each tick $25 USD. You may want to approach the e-mini contract also at CME for a reduced exposure per point of $50 USD. The e-mini contracts are very liquid and very popular with traders.
Looking at the analysis of this “lesser known” index the weekly chart below shows the current position. We have seen two strong bullish sections since August last year and we are now tracking in a sideways pattern. For those measuring their ranges you may note that section two is approximately 150% of section one in price.
Chart 1
click chart for more detail The overall pattern is showing some support off the recent triple bottom as in the chart below (it is also the level of an old top in March 2004). Watching swing ranges and the swing chart, the pattern is looking weak at the moment. This sentiment of weakness is supported by a study of relative volumes like OBV and accumulation/distribution, they are signalling that the index is in the process of distribution. The level at 1166/1167 will be a key level for future movement; a break of this area could see a technical break out on the downside.
Chart 2
click chart for more detail To put the point of trend into perspective we can see in the swing chart below, the trend since the 7 th March top has been clearly down. However, the first higher top has formed. Where the next swing bottom forms will give a good lead to the direction in the short term. Looking at the 7 th of March, many using time analysis will recognise this date and to boot it is nearly a direct anniversary date from 2004.
Chart 3
click chart for more detail Many of the traders I speak with are looking at this as potentially the first real pullback for sometime, so it will be interesting to see if this major world index can push from this base and take out the 7 th of March top or if it will break to the downside. Look for old tops to provide support. If the current range can be repeated on the way down, a target around 1100 could be in order.
Good Trading
Aaron Lynch
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