Yesterday I proposed the idea that regardless of what number came out for the unemployment report the markets would respond positively. Obviously today is proof that that is not the case. My thesis was wrong, but the support level I said to watch was not. 1,538 was tested today and has held strong for now, with SPX at 1,547 off of a 1,539 low of day. What I take away most from the action so far is that the Russell 2000 is down the least of the major indexes, in a sign that this move lower in small caps may be nearing its exhaustion point.
Today you’ll read about why 1,538 is the key level to be watching in the S&P500.
March 6th was a very important day in my view. That was the day after SPX closed above at a multi-year high. What’s significant about this vs say February 19th, when SPX also closed at a multi-year high? The fact that a bearish engulfing pattern was undone. If you look at the pattern that followed 2/19, it was one of the strongest bearish chart patterns out there. The only way to negate the pattern is to register a close above the level at which the pattern developed, in this case 1,530, March 5th did just that as SPX closed at 1,539. March 6th though was the ‘show me’ moment for the market. Where traders got to see if the breakout was for real, or if it was just going to result in another bearish pattern like the one that came after 2/19.
That pattern didn’t develop again, and on March 6th, SPX barely pulled back at all. The low of day on 3/6? 1,538. That level immediately became the reference point for traders moving forward, as it was the “post breakout low.” The significance of 1,538 is supported by the action on March 19th, in which the low of the day was also 1,538. A successful hold of 1,538 on March 19th preceded the S&P500 closing at an all time high just 2 weeks later. Then you have today, where the low is within 1 pt of 1,538, more evidence of this level’s importance. All in all it is pretty simple, if we stay above 1,538 do not get overly bearish. If we do break that level then the next key support is 1,520-1,530 where an uptrend line off of the November & December lows is currently positioned.
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