S&P 500: This Retrace Can Lead To 2680a Before Reversal.

S&P 500 update: After the bearish pin bar appeared and triggered within the predetermined resistance zone, price behaved as anticipated. Selling momentum asserted itself and this market is now in retrace mode. To avoid premature entries in a situation like this, it is important to evaluate potential support in light of the overall technical context.

In my recent S&P report, I wrote that price was vulnerable within the 2710 to 2751 resistance zone (.618 of recent bearish structure). The selling did not kick in right away, it took a couple of days, but the point was the risk of retrace was high. There was also a nice report written on S.C. yesterday about how to maneuver in a situation like this using options.

Now that bearish momentum is in effect, the question is: how low can it reasonably go and still maintain it's broader bullish bias? 2683 is the next support level (.382 of recent bullish swing) to watch for as far as a bullish reversal.

Remember, the bigger picture is bullish. Elliott Wave counts have pointed to the 3K area as a potential long term target (posted on S.C.). Considering this context, IF price is going to adhere to this path, then the 2680s are a convenient location for buying to resume. The price patterns that appear there will either confirm or reject this idea.

If price breaks below 2683, then it is obviously in for a deeper retrace, but it will still not change the bigger picture outlook by much. It will signal more of a range bound market on the short term.

In summary, when using the S&P as a gauge for portfolio management, or as an outright trading instrument, the technical picture can provide clarity where fundamentals will not. I wrote about the price vulnerability days before the bearish pin bar and short trigger. I cannot predict the news and catalysts that actually cause the reaction, all I know is that the probability of selling is high.

This market is very reactive to many factors such as earnings, political events, economic reports, etc. It is tough to do for most people, but tuning all this out and looking at the market purely from a technical standpoint will provide extra insight that the herd often misses because of these distractions. Short term price action favors selling, so be prepared for the 2683 level whether you are day trading or managing a stock portfolio. You can also follow along on S.C. and see how we utilize this information.