Last week we saw the S&P 500 finally breakout of its sideways channel direction (green box) as news reports that China & US are back to talking again and are preparing to meet at the end of the month. The theory is that hopefully after over a year they somehow come to some sort of agreement. However interestingly the recent rally we saw last week for US stocks has been on below average volume as shown on the chart. Whenever I see this it tells me to be weary of any move seen. In other words its a red flag and can’t be relied upon as a trader.
Looking at the daily chart of the S&P 500, we can agree the positives is that it broke out of the box and is now trading above the 52 day moving average, which are bullish signals. On the other hand the price action has been hitting the original uptrend line, however as a resistance level rather than as a support level as seen back in June 19. Add in low average volumes overall on this spike higher and the weight of evidence isn’t totally in favor of the bulls.
Looking ahead for the week for the S&P 500 index, I'm looking to see if the price action can finally jump back above the long-term uptrend which it hasn’t been able to achieve yet. If we see a pullback this week to the support area of 2,940 and hold, this would be the ideal for the bulls. If it was then followed by a strong move higher with above average volume back inside the uptrend line either this week or next then I would agree that the S&P 500 will be heading for new record highs in coming weeks and months.
Given that the ECB are meeting this week to most likely introduce more QE & other stimulus, followed up by the FED next week for the FOMC. These two big events should keep US stocks elevated. However watch out for a wild card (Ie Trump tariff / trade tweet) and a move back under 2,940 area and back inside the green box this week, even though this is an unlikely scenario.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.