By John Sheridan, Trade With Precision

The US indices have been through tumultuous times this year, but now seem to have come out the other side. Until late January 2018, they had been in a strong uptrend that was almost a thing of beauty with the Daily, Weekly and Monthly charts often in agreement. 

When this happens, there is the potential for opportunity to enter a trade on a lower timeframe, taking advantage of the tighter risk-to-reward ratio offered, while having the option to let that trade run for the longer term. When this scenario works out it can be profitable.

I would like to begin my analysis on the US SPX 500 Monthly chart below. The bullish trend broke down at the end of January and looked over, however in the ensuing months we have come back into alignment once again.  

Interestingly, 2018 started off with a bang as price dropped around 12% at the end of January. For all intents and purposes, the long-term uptrend on the index looked over however looking at the monthly chart you will see that this drop was merely a pullback into the rising moving averages. And the rest of 2018 has been more bullish as price action hasn’t had a confirmed break down through the rising 10 period moving average on the Monthly time frame since. And this month, price has broken to all time highs.

We are also now looking bullish on the Weekly chart. The January pullback looks a little more bearish on this timeframe as price made a lower high in March, and then pulled back to the 50-period MA before resuming the long-term uptrend. The MAs have now come into the optimal geometry and the bullish trend momentum has been confirmed by both the MACD and the RSI indicators.

Moving our analysis down to the Daily chart, we can see that we have a well-defined up trend with satisfactory MA geometry and bullish convergence, again confirming possible bullish trend momentum.

Price is a little over-extended now, so I’ll be looking for it to pull back to the large round number of 2,800 as this level has been prior resistance. The 50% Fibonacci level clusters tightly with 2,800 support and it is currently situated in the MA Buy Zone which the zone between the 10 and 20 period MAs. I have multiple technical reasons to consider a trade here and if price develops a small bullish candle in or around 2,800 then I will consider a possible long trade with the potential to take a piece of a longer-term move. 

 

There are many analysts out there who suggest that it’s only a matter of time before the US markets melt down, with levels of debt now far greater than they were during the last financial crisis.  While I don’t disagree with that, this has been the case for many years. As long is price action remains bullish, I will be looking for trading opportunities to the long side. For that reason, the US SPX 500 is definitely on my long watchlist.