Given that the S&P 500 remains in a broader trading range pattern, today’s sharp downside action is precisely what was expecting from a charting standpoint under the “Range Continuation” scenario.
Let’s update our levels – which are exactly the same – and put the price action in context as we plan the next target.
Start with the update earlier in the week which clearly defined the trading range and plans.
The pure price chart above highlights the range itself – 2,045/2,050 to 2,110 – and the midpoint at 2,080.
As simple as it sounds, playing “ping pong” reversal trades off these levels has been an effective short-term strategy.
Taking it one step further, we can see the positive and negative momentum divergences that assisted in forecasting a likely reversal away from these support or resistance boundary levels.
A lengthy negative divergence “undercut” the rally and mid-day Double Top into 2,110 and today showcases the aftermath as price once again falls sharply and decisively from this level.
The initial target – the Midpoint – has already been achieved so be sure to monitor this level for a bullish bounce.
Otherwise, a trigger-break down under 2,080 suggests sellers will dominate the market and thus price could fall once again toward the 2,050 level.
Here’s the bigger picture once again as seen on the Daily Chart:
Ultimately, we’re planning for another downside resolution and target play down toward 2,050 (which would be likely IF price breaks firmly now under 2,080).
The Alternate Plan would be the Breakout Scenario which could play out similarly to February.
Note two down days against the (then) upper resistance near 2,060 and then a bullish surge that created a breakout and triggered a Short-Squeeze.
Barring an ‘alternate’ breakout scenario, we’ll expect the power of the trading range to hold price within its gravitational pull (balance/equilibrium).
Whatever strategies you use, be sure to incorporate the simple Range Rectangle Levels into your plans.
Follow along with members of the Daily Commentary and Idealized Trades summaries for real-time updates and additional trade planning.
Corey Rosenbloom, CMT
Afraid to Trade.com
Follow Corey on Twitter: http://twitter.com/afraidtotrade