S&P 500 Consolidates In Tight Range

After an amazing run-up off the early March lows, the S&P 500 (^GSPC) is finally pausing to consolidate some of those gains.  Let’s take a look at the current triangle consolidation forming and note key levels of support and resistance going forward.

As I mentioned recently, the S&P 500 has (at least) three levels of confluence resistance at the 940 level via the falling 200 day SMA, top of the Bollinger Band, and the January highs.  These levels are still holding a lid on price as bulls bump against this area.

However, there now has developed a level of key support about the 880 level, coming from the February highs, May lows (resistance once broken becomes support) and the 20 day EMA.

There is also a rising trendline that can be drawn under the steady uptrend since March, but if you look very closely, price has just nipped beneath this established trendline in what might be an early sign of weakness - 45 degree angular trendlines are never eternally sustainable, especially on broad indexes.

A doji has formed on the support of the 20 EMA at the 880 level.

Look closely also to see that - currently - a descending triangle may be forming on the daily chart - if so, this has bearish implications.  Notice the contraction in price swings that will soon lead to an apex and breakout of the minor converging trendlines.

As it stands now, 940 will be powerful resistance to break and if price fails to hold 880 as support, then it will set-up a sudden “magnet trade” to test the rising 50 day EMA at 860 and if that is broken, then we will have to look to Fibonacci retracements (drawn from the March low to the May high) for additional levels of possible support.

As I suggested previously, it’s probably better for most people to wait until we break above 940 or beneath 860 or 880 instead of trying to play Price Ping-Pong between these key levels.

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