SP500 has been growing nicely for more than a year. And that is how long the market hadn't tested the previous month's High. For the last 12 months, the average micro-correction hasn't even approached halfway to the previous month's high-low range. Now, it did and with style. Although it recovered fairly quickly, it is now back near the initial takeoff price and might breakthrough.
#1 Previous month's low wasn't only retested, but also violated
Over the last year, all corrections went mostly just halfway through the previous month's range. All of them were violently rejected as some people refuse the idea that the stocks could ever fall. This, by the way, seems to be a belief held by hedge-fund managers too as they were opening leveraged positions in the last months.
With all of these corrections recovered so quickly, a ton of volume was required creating the most voluminous day of the month each time. These levels are strong, no doubt. But they were built on top of each other. Break one and the other will weaken.
Speaking of weakness, we might have just created a lower high.
#2 Closing near the last rejection
Look at these four examples. All of them have one thing in common - the price never closed near the previous rejection again without making new highs. Only in one of the last four cases, the price came back, but it was a low volume confidence-absent move closing in a pinbar.
Compare this to the most recent price-action. #1 We came to retest fairly quickly, #2 on high volume, #3 and closed near the candle's low. The market is trying to push higher, many are buying this as a commong dip of which there were many in the last year. But I am afraid that the momentum is shifting now!
# Next support is around $4150
Today seems to be a high volume test if the market accepts the price and if it is worth pushing lower for the bears. Whatever their decision is, I do believe that the risk for longs is now very high. On the other hand, shorting rewards outweight the risk in my opinion. If the current level is broken, it should go as far as $4150 where 200 EMA meets one of the previous violent rejection lows.
For longing, I would consider that level to be optimal but only if confirmed by later price action.
#1 Previous month's low wasn't only retested, but also violated
Over the last year, all corrections went mostly just halfway through the previous month's range. All of them were violently rejected as some people refuse the idea that the stocks could ever fall. This, by the way, seems to be a belief held by hedge-fund managers too as they were opening leveraged positions in the last months.
With all of these corrections recovered so quickly, a ton of volume was required creating the most voluminous day of the month each time. These levels are strong, no doubt. But they were built on top of each other. Break one and the other will weaken.
Speaking of weakness, we might have just created a lower high.
#2 Closing near the last rejection
Compare this to the most recent price-action. #1 We came to retest fairly quickly, #2 on high volume, #3 and closed near the candle's low. The market is trying to push higher, many are buying this as a commong dip of which there were many in the last year. But I am afraid that the momentum is shifting now!
# Next support is around $4150
Today seems to be a high volume test if the market accepts the price and if it is worth pushing lower for the bears. Whatever their decision is, I do believe that the risk for longs is now very high. On the other hand, shorting rewards outweight the risk in my opinion. If the current level is broken, it should go as far as $4150 where 200 EMA meets one of the previous violent rejection lows.
For longing, I would consider that level to be optimal but only if confirmed by later price action.