Originally published by Axitrader
Key Takeaway
Global stocks markets have been led higher by the rally in US markets since the US presidential election. That has seen new records highs achieved in global benchmarks.
It's clear the rally has been supported by the cumulative impact of much stronger than expected data in the United States, China, and other nations over recent month's as well as expectations about Trumponomics and the economic stimulus that will flow from it.
So far the post-election rally has been unrelenting. But there is a strong chance we are in a zone where the S&P 500 - as the leader of the global rally - is running into resistance and could stall. Or more likely set the scene for a pullback.
What You need To Know
There are many different ways to analyse markets. That's the case whether you are a fundamental analyst of a technical analyst.
My approach is to try and keep it simple whether I'm doing the fundamental work which generates my interest in various markets, or the technical - charting - work which then generates the entry signals I use when I execute my trades.
To that end when I'm charting I like to start very simply using trendlines and Fibonacci analysis. I then overlay it with oscillators like MACD, stochastics, and trend inidcators like Bollinger bands. But in essence, it all starts with trendlines.
Which is a long way of getting to the point of this post.
The S&P is running into a zone where I see significant overhead resistance.
First some background.
The S&P 500 bottomed in March 2009. I remember the day very well because one of my staff at the time - who I had been training in economics and charting - came to me and said he thought the bottom was in. On the very day. I did my own work and agreed with him - the next day.
The market then rallied until a break down in 2011 before it began the big upward climb that saw the S&P 500 more than double by May 2015 when the rally stalled. Chinese authorities then sounded the death-knell of the rally when they blindsided markets with the 10% devaluation of the Yuan.
That saw the S&P 500 break down and through the uptrend it had been in since 2011.
But what was important about this uptrend was that the support line for the rally between 2009 and 2011 became the top of the channel for what then became a parallel up trend channel for the market rally from 2011 to 2015.
Now all this might sound like Einstein's spooky action at a distance. But as the chart below shows traders consistently used the parameters of this channel to trade off.
That's important because the S&P 500 is now back within 30 points of the bottom of that previous uptrend channel which comes in around 2375.
That's against last night's close (CFD - so futures) of 2345. At the recent rate of appreciation that could be just a few days away.
But when I look at this level, the rate of the most recent appreciation, and I throw in the Fibonacci projection of the January 2016 - August 2016 rally (which the Trump/Economy rally broke the market up and out of) I see mission accomplished.
That's because once prices moved above 2336 they have satisfied my 138.2% projection of that previous rally and range.
Now, this is not to say I'm a big bear.
Fundamentally the data is still printing better than expected and that's before the announcement of the tax cut plan president Trump has flagged.
Rather this is to flag an area of potential congestion, and thus a trading opportunity I may take. It's an opportunity which could see prices for the S&P 500 drop as much as 100 points at some point before finding support once again.
Have a great day's trading.