- August 19, 2022
- Posted by: Tradingshot Articles
- Category: Stock Indices
The S&P500 index (SPX) hit 3 days ago the 1D MA200 (orange trend-line) and got rejected. But perhaps an even more important development than that is the fact that this rejection also took place on the January 04 Lower Highs trend-line, practically the Resistance trend-line that started from the All Time High (ATH). We’ve been talking about the important of this trend-line since the March 29 Lower High but more recently warned you about on our July 27 analysis, where we gave the 2nd major break-out buy signal of the June rally:
As you see, the 1D MA200 happens to be almost exactly where the 1W MA50 is, making it a major Resistance. The bearish sentiment gets even stronger, if we take a look at the 1D RSI, which is being rejected after breaking into the +70.00 Overbought Territory last Friday. In the recent past however, such RSI overbought breaks, have proved to be only short-term index price rejections and technical pull-backs mostly attributed to profit taking. After all, since the June 16 Low, the S&P500 has rallied almost +19%, the biggest non-pullback rally since September 02 2020!
Just a reminder, we accurately captured the exact start of this mega rally with our analysis on June 20:
To be more precise, since 2019 such rejections on overbought 1D RSI levels have resulted into 1D MA50 (blue trend-line) tests 5 times, 1D MA100 (green trend-line) tests 1 time and 1D MA200 tests 2 times (but when price action was much more flat and of course we were not into such a high inflation correction). Scroll the chart to the left to see those. Currently the 1D MA100 is trading towards the 0.382 Fibonacci retracement level from the Aug 16 High, while the 1D MA50 on the 0.5 Fib. If this is indeed the first rally of a new long-term Bull Phase, those are the Support levels to consider.
In the event of a 1D MA200 break-out, we would ideally like to see a break above the 0.618 Fib (from the January 04 ATH), as this is the Golden Ratio. In both cases, the risk is very low being so close to the 1D MA200 and the Jan Lower Highs trend-line, so if you are a short-term trader, manage your trades accordingly.