On September 5, I provided my latest update on the S&P 500.
I gave my readers a two-way forecast.
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I called for a rally that would meet Jeff Clark’s short-term target of 4150-4200.
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Then, we would go on to give back those gains.
Here’s how that forecast played out…
First, the S&P 500 futures went on to hit 4158 during overnight trading before reversing sharply.
Then, the market gave back the entirety of those gains – shedding 330 points in the process.
That’s some wild trading. However, we’re not done with the volatility just yet.
Back then, I also wrote that the market is likely to continue whipsawing traders back and forth with big moves in either direction.
And now, we haven’t finished selling off in the S&P 500.
To see what I mean, check out this chart of the S&P 500…
This chart is an example of a timeless concept involving support and resistance.
When a floor in a market gives way (support), prices tend to treat it as a ceiling (resistance) in the future.
The opposite is also true. When the market breaks through a ceiling (resistance), it’ll treat it as a floor (support) in the future.
I call these areas “zones.” They’re different from key levels, which is a specific price point. But a zone is a general area.
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You can see how this concept worked during the last rally in the S&P 500. Prices ran all the way up to 4158, which is where the market sold off back in June (top blue line).
We’re now trading just below a prior zone (middle blue line).
The market broke out of this zone back in July and has now come back to see if that same zone is now a viable floor.
But instead of finding support on this floor, the market crashed right through it. That tells me that sellers are still firmly in control of the price action.
So, whenever the market is trading at an important zone, I pay attention.
It doesn’t mean that there’s always going to be a trade, but they often generate reliable signals.
The most likely move for the market is going to be to test the next floor.
That zone was established when the market bottomed out at 3676 back in June (lower blue line).
If sellers can bring prices back to that low, then we must wait and see if the market is ready to bounce once more.
Stay tuned for next week’s update.
Happy trading,
Imre Gams
Analyst, Market Minute
Reader Mailbag
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