S&P 500 - Not Time to Get Bullish (yet)

9 de set. de 2022

SPX Hello traders. Let's take a look at the S&P500 to see if the chart matches the sentiment over the last few days.

In my opinion SPX isn't quite ready on higher time frames for serious bullishness. Others may disagree but when an objective method of trend analysis is applied to the weekly chart it becomes difficult to make a bullish argument. When two methods of objective trend identification are used and they both suggest a down trend, it is nearly impossible to draw another conclusion.

Now before anyone thinks that I'm bearish on the S&P500 let me put my personal stance in the spotlight. I'm actually trend neutral at this juncture due to the fact that higher time frames are ranging in a wide, slightly chaotic range. We'll objectively identify that as well, of course.

In the first photo of the SPX weekly chart I have used a method of trend identification identifying key levels of support and resistance. For any one of these swing highs or lows to be identified it had to pass three tests:

(1) Price action must have broken a key level of support or resistance
(2) Price must have pulled back with two consecutive candles of the same color.
(3) These candles must be red if price recently broke resistance or blue if price recently broke support

Using these rules we see that the SPX was in an objectively defined uptrend from 23 March 2020 (Covid Low) to 03 January 2022 (all time high).

During this timeframe the market was taking out objectively established swing high resistances and respecting them as a level of support. This led to higher highs and higher lows. Technical traders understand this as the definition of an uptrend.

Once the all time high was reached, the market began shifting behaviors. It began taking out objectively defined support and respecting them as levels of resistance. This led to a series of lower highs and lower lows.

Recently, SPX was able to peek above a critical resistance level but could not hold above it. This is a disruption to the down trend but does not rule out the possibility of downward continuation. There is no pattern of higher highs and lows established (yet) and there is only one higher high (yellow circles).

Currently the higher high theory is subjectively defined according to our rules and has not been clearly respected as a level of support or resistance since. Additionally the move comes from a lower low in between our two circles which suggests disruption and weakness but not necessarily a reversal.

Our second objective trend identification method will come from the anchored VWAP tools. We'll use the same two key reference points - Covid low and all time high. We see these with the blue AVWAP dynamic lines.

Price action has validated both of these anchored vwaps in the past as both support and resistance. The read is pretty simple with them. Price is bracketed on both sides by support and resistance. It has not convincingly broke and held above or below either one, leaving price in a range.

In my experience when price is ranging I do not break out my bear claws or my bull horns. I take a position of neutrality in the market and look at the extremes of the range. It is there that I find opportunity to fade the market back to the other extreme.

There is great confluence between the anchored vwaps and simple line work to suggest that these zones of support and resistance are valid. If treated as such, then the appropriate time to get bullish (or bearish) would be when price breaks out of the range. Until then my game will be to fade the range and continue to be neutral. This is also a disciplined, measured, and objective approach to technical trading and doesn't involve the predictions that many will make.