S&P 500 Resistance And Support Levels

In the long-term price chart, visual pattern recognition (“technical analysis”) doesn’t tell you much. In the short-term, it can often be a good guide when deciding when to make the next addition to a position.

Right now the S&P 500 chart suggests holding off on making additional investments in US large-cap stocks until the technical condition becomes Bullish – it is now unclear. It does not suggest reducing US equity exposure, but it does not suggest increasing US equity exposure either.

If you have a new slug of money to invest or have a cash reserve position to invest, it may be prudent to do that when the technical indicators are more favorable.

Even if technical analysis is basically voodoo, like voodoo it works because people believe in it. If enough investors believe that certain current chart patterns precede and indicate certain near-term future price behavior, then they will act upon that belief, and the belief will be fulfilled – perception is reality.

“Support” and “Resistance” are among the more solid technical indicators. Double and Triple Tops are a commonly accepted indication of a price resistance level. Double and Triple Bottoms are a commonly accepted indication of a price support level.

Prices tend to bounce down from resistance and bounce up from support. When prices move above resistance or below support, they tend to move by a significant amount. That makes support and resistance useful for various kinds of short-term investment decisions, among which is deciding to make that next investment now or to wait a little while for the price to decide whether to be bounded by the support and resistance or to break free to continue a trend.

Two other common ways support and resistance are used are in selecting stop-loss exit points, and it selecting strike prices when buying or selling options.

Right now, today, I suggest deferring that next investment into the S&P 500 (or comparable fund) until the price stops playing with the current resistance level (the red dashed line at approximately 2800, formed by the triple top in 2018 shown by red down arrows).

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Disclaimer: "QVM Invest”, “QVM Research” are service marks of QVM Group LLC. QVM Group LLC is a registered investment advisor.

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