S&P 500 Index Near An Important Resistance Level

S&P 500 had a spectacular rally with a gain of about 7.5% in a matter of just 3 days.  There were several technical signals for the rally, this is an example from my November 22 post. The index is now near an important resistance level because it is where two very important technical indicators converge. This type of resistance level, if broken to the upside, can become strong support and a base for a new uptrend .  If resistance persists, however, and price fails to break above it, it often signals a correction and maybe a new downtrend 

The important resistance level I talked about in the introduction is found where the trendline TL and the 200-day simple moving average SMA(200) converge near 1,265.  The resistance is stronger at that price because both a down-trendline TL and the SMA(200) are present and the index must go through both before it can go higher.

Historically, the way price acts at similar levels is a good indication of where the market is heading. If the resistance breaks with little effort this may be an indication of a base forming for another major bull run. If price fails to penetrate this type of resistance a few times, the market will wait for fresh news to fuel a possible rally. If the news do not arrive on time, participants will scramble for cover and a correction may start. Thus, careful attention to price action is required for better forecasting at this level.

The MEI(14), my proprietary indicator, has just crossed the zero line almost vertically, indicating the strong momentum of the market. There is room for further gains, unless there are bad news from the debt front.

Have a good trading day!

Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)

Disclosure: no relevant positions at the time of this post.

Disclaimer:The author is not a financial advisor and does not recommend the purchase of any security or advise on the suitability of any trade or investment in any timeframe. ETF, stock, futures, forex and options trading and investing involves substantial financial risks and can result in total loss of capital. If investment or other professional advice is required, a licensed professional should be consulted.

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