The US SPX500 is trading near record highs and some analysts are predicting that it could rise by up to 25% in 2021. Now, as a technical trader I don’t base my trading decisions purely on fundamental analysis or the recommendations of analysts, but when they line up with my analysis of the technicals then I take notice.
Looking at the monthly chart below the outlook is decidedly bullish. The US SPX500 has been in an upwards trajectory since 2009, sometimes putting in lower lows but always re-establishing an uptrend quickly. Following the most recent lower-low in March it promptly put in a higher high, followed by a higher low and has recently put in an all-time high, with price still close to that level.. The momentum of the trend is confirmed by bullish convergence on the MACD and whilst the RSI is flat it is not diverging.
On the weekly chart the price action also looks bullish. Following the sell off at the start of the US benchmark index put in a V shaped recovery, quickly establishing an uptrend and breaking to new highs. After a period of consolidation, it has now broken out of its range and is showing the potential to continue its upward trajectory. The moving averages are confirming the strength of the trend by displaying the ‘fanning pattern’, with the faster moving averages over the slower ones, all moving in the same direction. Again, there is no divergence on the indicators, implying the trend could still have momentum.
On the daily chart, price has just pulled back from its all-time high, and price has pulled back to the 10-day moving average. Neither the MACD nor the RSI are diverging with price, implying that there could be good trend momentum and the potential to make further highs.
With many of the ingredients for a long trade in place the final piece of the puzzle would be for a bullish reversal candle to form. Once a reversal candle has formed and closed I would then be looking to enter long if the high of the reversal candle were broken with a stop loss placed below the reversal candle.
In light of current conditions, I would manage my risk carefully, by closing half of my position if a one to one risk to reward is achieved and then moving my stop up as any new swing lows are formed to lock in profit.
