📈Here's the S&P Year review - and where we could go nextI have drawn an easy to understand technical chart of the S&P500, highlighting the major support and resistance areas from December to July, using a daily chart (each bar is 1 day of trading on the S&P500).
Notice on the left side of the chart all supports levels that broke, acted as resistance post FED bazooka and eventually turned back into support.
When support turns resistance and vice visa, this gives levels more importance, as they have served both sides, it’s clear that day traders and swing traders are watching these levels for breakouts and reversals.
My chart starts off in December 2019 when the S&P500 was approaching its 10th year in a bull market (longest ever in recorded history), with no signs of stopping.
That was until January 22nd, when the chart started to display a bearish divergence (the green lines).
A bearish divergence is one of the most popular tools that traders utilise to time market reversals, this type of divergence forms on a chart when price prints a higher high, but the indicator you are using fails to follow suit (I’m using RSI).
A divergence in a market is an early signal that an existing trend is likely to reverse and/or consolidate.
In the case of the S&P500 in February 20th, the trend reversed and the index fell 35%, my guess is that it would have kept falling if the FED did not launch its BAZOOKA.
Since its March 23rd low, the S&P500 has rallied all the way back up to it’s current level of 3,200, and is hovering at June 9th high (resistance level).
If the S&P can clearly break this level upward, there’s a good chance it will re-test the all time high, as there is nothing else in the way, and the market will have all eyes on the ATH.
If it cannot break the first area of resistance, it will most likely re-test the 3,000 level for a third time (the more times a level is tested, the more likely it is to break it).
If the 3,000 level breaks down, the next area of is 2,700 and after that the 2,200.
What is worrying is that we can see a second bearish divergence (green lines). Price is trying to move higher than the June close, but the momentum is dwindling, singing the existing trend is likely to reverse and/or consolidate.
The last time this happened in the S&P500 it dropped 35%, what will happen this time with the FED ready to step in, and retail buyers ready to buy all the dips?
Only time will tell.
I hope this brings everyone up to date on the price action of the S&P500 and major areas to watch for. If you have any questions, feel free to ask below.
