Planning the S&P 500 into the New 2040 Level

Market Internals and a Critical Trendline give us clues about how to position into the current 2,040 level for the S&P 500.

Let’s see both of these and update our trade planning:

S&P 500 $INX Daily Chart

A Broadening Top or Expanding Trendline pattern continues to plague the market, or at least the charting side of the market.

The upper trendline extends into Tuesday’s high at 2,040 which is our key planning or pivot point.

Ultimately buyers should look to take profits into 2,040 ahead of a likely pullback, and very aggressive short-sellers can be emboldened to attempt a short-term pullback play against 2,040 (placing stops above 2,040).

You should be fully aware – and totally prepared – that a break above 2,040 simply would extend (continue) this impulsive short-squeezed rally higher as sellers would be the first to take their stops above 2,040 (a buy order) and bulls would then step in as well.

Market Internals paint a bearish (cautious) picture into the 2,040 level:

S&P 500 $INX 30 Minute Chart

These extended or non-stop rallies are actually MORE common in today’s stimulus-manipulated markets and we shouldn’t be surprised by them.

This is the 15th instance of a similar multi-week rally since the 2009 bottom and we’re using the prior events as guidance.

Traditional analysis and planning would have us be bearish and cautious, eagerly expecting a logical pullback against 2,040.

We’ll play the traditional odds accordingly, which would make us cautious/bearish (taking profits or short-selling against 2,040 expecting a short-term pullback perhaps to 2,000).

However, we’ll be open-minded and play the “new market” probabilities which have us breakout bullish above 2,040 in the event price triggers a short-squeeze rally higher beyond the 2,040 (triggering stops along the pathway higher).

We’re objective as traders, not biased, and we plan a bullish and bearish thesis – and let price be our guide.

For more daily updates from Corey, visit his blog at Afraid to Trade.com.