Battle Between Repeating Pattern and Resistance for S&P 500

Will a consistent pattern repeat for the fourth time in 2014 (propelling the market to new highs) or will stocks fail into their current resistance level?

Let’s take a quick look at the current S&P 500 and plot these price pathways as our guide.

S&P 500 $SPX Daily Chart

Let’s focus first on the “Repeating Pattern” of 2014.

I’ve been highlighting this pattern to members and so far, we’re seeing a textbook “Pattern Repeat” scenario.

Note the three highlighted areas where price fell sharply under the rising 50 EMA (blue) only to be halted forcefully by an intervention wave of buying pressure that stopped the decline and triggered a short-squeeze.

A “Short Squeeze” occurs when sellers enter the market and then are forced to buy-back to cover losing positions when price unexpectedly (to them at least) rises sharply through resistance which triggers their collective stop-losses.

After the strong intervention at the lows, price then traveled through (above) the 50 day EMA which further brought more buying pressure into the market.

We’re simply framing the current S&P 500 in terms of “Will History Repeat” and thus propel the market higher (making us bullish above the 1,980 level) or else “Will This Time be Different” and we’ll see a sudden reversal down against the 1,980 index confluence (resistance).

As we study our charts and plan our trades, keep this simple frame in mind.

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