Keep the Faith in the S&P 500 Trend, at Least Until 2,000...

SP:SPX   S&P 500 Index
Hi all,
We have been reading market chatter about whether the S&P 500 Index             is too high and due for a correction, in the face of the recent sell-offs.
Hence, I would like to give the technical view of things and perhaps share more about using the Relative Strength Index Indicator ( RSI ) at the same time.

Please take note this is NOT A BREAKOUT trade Idea that I usually write, but more of a simple unimaginative "Follow the Trend" trade. So you can sit this one out if you are only into Breakout trade ideas. Alright, here we go:

We note that price has been trading along a very steady up trend line , since Nov 2013. The trend angle is not very fantastic at about 22 degrees. However, the "not so great angle" also indicates that this trend can last much longer.

We observed that this trend line was slightly broken at the start of Oct 2014, leading to questions about whether the Bullish trend has come to an end.

In order to answer the question raise in 2, we can take a look at the Relative Strength Index Indicator ( RSI ), 14 periods, for clues.
We go back in time and look at low points in the SPX             and match them with the RSI (14) values. You will see that RSI bottoms up around 33 and SPX             trends higher. This means that as long as RSI stays above 33 levels, the bullish trend is still intact.
Also, we note the latest RSI low was formed at 36, slightly higher than the RSI support of 33.
Hence, we can conclude the slight breakout of the trend line in is a false breakout and trend is most likely to hold.

We project that price action is will most likely attempt to trade towards 2,000 levels once more.
Essentially, this "Follow the Trend" trade is intended to capture the price movement, as it attempts to have another try at 2,000. Some might say there is not much room for profit, but for friends who are trading Futures , it is pretty good enough.

Stop Loss: Below 1,935.

Take Profit: 2,000. Actually, long positions can be closed early around 1,990s.

Risk: There is a risk that the Bullish trend will evolve into a sideways consolidation or even form a topping formation. This is why it might be a good idea to close out when price is about to reach 2,000 and let others sort out whether to take the index higher or lower.

Similar Idea:
You can switch to the chart for Dow Jones Index and see similar formation in both the price action and RSI (14). You can apply the same RSI concept in , and practice on reading RSI support and resistance levels.

Using Support and Resistance Levels of Relative Strength Index> Technical Analysis for the Trading Professional by Constance Brown, Chapter 1: Oscillators Do Not Travel between 0 and 100.
I don't see a bounce this time. my Fibs and Ichimoku paint a more dreary picture. This time around the Bears have attained the upper hand.... Posible trend shift in the works but it's too soon to tell.
+1 Reply
Yes, a lot have changed since I posted the idea.

I think my idea is not valid any more as price have traded well past the Stop Loss of 1,935 and the week closed with a very clear Double Top trend reversal pattern. It seems the music for the Bullish Musical Chairs have stopped...

From the price action so far I have to agree with the idea that trend has shifted already and we should brace ourselves to capture the downside move.

Double Top>
thanks for insight
BreakOutArtist ebayaccount.nguyen
Thank you Nguyen!
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I think you guys are far too optimistic...the 2 year trendline is broken for the third time this week. Look for a test of the 200 EMA at 1900 and a bit. If that doesn't hold, look out below... Stop loss at 1935 ? We are at 1928 already
Leo.Ash gunne821
Big boys want us to believe that we are enter in a bear market and the top is already made... i do not buy that bear trap
gunne821 Leo.Ash
I am not a 'big boy', just a guy who likes to trade at home. Don't know how long you are in the markets for, I've been around for 15 years, and have seen some nasty drops. Things don't go straight up, corrections do happen, trend reversals do happen...Question remains the this multi year bull market rectified, is the world in that great shape, that markets have been going up for years? I live in Belgium, and here in Europe the economy isn't recovering like we thought it would. The US is doing far better, I agree, but was a bull market like we've seen the last couple of years really showing us the strengt of the economy, or is it greed once again, I go for the latter.
Leo.Ash gunne821
Gunne821 in my last reply i do not say that you are a big boy. What i mean is: i understand your concern about this long bull market, but the drop will end very soon, maybe this friday or next monday and be prepared for the rally until the end of the year.
gunne821 Leo.Ash
I understood what you wanted to say, Leo. But it's not always 'us' against 'them'. I see a trend reversal, or at least a decent correction coming for now...And I don't believe the 'smart money' is buying every dip right now...It's just the greed from the little guys keeping the markets up imo. I sold my last position today and am all in cash right now, I'll probably parky my money in monthly paying funds like EHI untill the dust settles. Here you can read that the smart money (at least some of it) isn't buying on every dip.
Leo.Ash gunne821
I usually only trade DAX, i am short DAX since 9800 level and my target is at around 8750 level. DAX will problably, this friday, open around 8900 level. At 8750 i will sell my shorts and get a big fat long position.
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