In yesterday’s commentary, “S&P 500: Fake-out Breakout Could Spell Trouble”, we looked at the false breakout of the historically tight trading range and subsequent drop back inside of the range as a precursor for a breakdown below the bottom of the range.
The trading day on Tuesday started out quiet. At the opening bell the S&P 500 (FXCM: SPX500) was down a single handle, sitting in the middle of the range – nothing to get excited about. But then just a couple of hours later sellers had emerged and the market was down about 20 handles lower, well below the bottom-side of the range.
A rally in the afternoon of the US session took the S&P back into the bottom-side of the range, but has since turned lower, forging the low-end of the range as old support turned new resistance. As long as the market views the 2155/60 area this way, so shall we. We have been discussing reasons why we believed an eventual down-side resolution would take hold and now price action is beginning to confirm our logic.
As long as 2155/60 stays in place as resistance, then the path of least resistance is lower with 2137 and 2127 as our short-term targets. However, should the S&P rally back into the middle of the recent range we won’t necessarily view it as a bullish event, but at the least we will likely turn neutral until further clarity.
(Click on image to enlarge)
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