S&P 500: Preparing for a Breakout – Week Beginning September 18 (Technical Analysis) (SP500)

The S&P 500 Index (SPY) is trading for another week, with the sideways range continuing and contracting. It’s frustrating action, but it can’t continue indefinitely, and we should see the scope expand this week. The question is, in which direction will it break?

Last week’s article highlighted the bias below 4430. Obviously, that hasn’t happened yet, but Friday’s move seemed to support the calls with a strong decline and a weak close. A major initiative is likely to happen, so this week’s preparations focus on how this initiative will develop and what its goals will be.

A variety of tried and tested technical analysis techniques will be applied to the S&P 500 Index on multiple time frames. The purpose is to provide actionable guidance with directional biases, significance levels, and price action expectations.The evidence will then be compiled and used to produce Calls in the coming weeks.

S&P 500 Monthly Index

Half a month has passed and September is still within a small range of the August bar (the August bar itself is almost within the range of July). The volume curve on the right side of the chart now shows a bell curve between 4325 and 4607, indicating balance.

The most important thing to note on the monthly chart right now is that there is a bullish bias due to the lack of a reversal pattern from the 4607 high. A new high should be reached at some point.

Monthly resistance is 4593-4607. 4637 is the next level above, followed by the all-time high of 4818.

4325-35 is an important support level, followed by 4195-4200.

The September bar is at number 9 (probably 9th) in the Danish Upside Exhaustion Count, so the signal will be completed. The fall in August may have been an early reaction, but I expect the impact to be more lasting and the pause longer as the rebound struggles to maintain gains.

S&P 500 weekly chart

The second week’s “inside” was caused by volatile sideways conditions. Its sub-range of 4447-4511 looks almost certain to break out next week, so this should lead to an expansion and breakout of the extremes of the “mother line” of 4415-4541.

A weak move to close the week at 4450 gives a bearish bias, at least weakening the low of 4447. That may not sound like much, but it could be useful if the market opens higher on Monday and rebounds. The possibility of chasing the rise is very low. Furthermore, a break below 4447 is the lowest expectation, and barring a reversal, lower support should come into play soon.

4541 is the first resistance level, followed by 4594-4607. A break above 4607 should result in a weekly gap at 4637-4662.

The small weekly gap 4405-4415 is the first potential support area, with 4356 below. 4325-35 remains a key level, with a small gap at 4298-4304 if this area is refreshed.

The exhaustion count on the upside (Denmark) was completed in July and has had an impact on the decline in August. New counts are interrupted by volatile conditions, requiring a clear trend to move towards the next exhaustion signal.

S&P 500 Daily Index

There is a developing head and shoulders pattern on the daily chart with the neckline at the 4335 area. If the price approaches the neckline, expect this to attract more attention. What better way to change the current stagnation and generate volume? if It does trigger, which could be a potential trap for shorts to get caught in. I would actually like to see this happen because then I would be more confident that the bottom has been reached.

Last week’s call for a break below 4430 remains valid, with Friday’s strong decline supporting that call. Next week’s question will be specific targets on the downside. Cautious movement is now expected at 4401, with 4397-4401 being the support area. However, a break above 4415 would break the 3-week contractionary range and enough energy has been built up for a bigger move. The lower supports come into play easily.

4511 is the first resistance level, followed by 4541.

Potential support levels are 4415 and 4356, then 4325-35.

The situation in Denmark is too fluid to show any signs of fatigue.

Next week’s activities

Wednesday’s FOMC meeting is the highlight of the week. A pause is almost certain, as is a hawkish stance given this week’s strong inflation and retail sales data. Further rate hikes are likely in November or December, and the Fed doesn’t want to make the same mistake as the European Central Bank, which signaled this week they may be done raising rates.

Yields and the dollar look stronger and should lead to further gains toward highs early in the fourth quarter.

PMI data will be released on Friday.

Possible changes next week

From a broader perspective, the S&P 500 is shaking off its monthly gains. There is still a bias towards an eventual new high, but consensus is for range trading and any move beyond 4325-4607 may not be sustained.

The recent bearish trend is a shock downward to 4430 points. This follows last week’s predictions and now there’s further evidence from Friday’s strong decline and weak close. Furthermore, the range contraction of the past three weeks appears to be about to break. This could trigger big moves (FOMC meeting?), if the decline is the same as Friday, below 4415-30, watch below.

4335-56 is potential support, but a strong move into this area would be bearish and I doubt it will hold again. In fact, the ideal scenario is to shake the bulls and trap the bears through capitulation and reversal. I’ve said this before and it didn’t happen, but it’s especially true now, with a big head-and-shoulders neckline in the same place. A first test of 4335 should lead to a rebound, but a brief test would lead to an eventual decline (bear trap) to 4298-4301, which is gap filling and the 38.2% Fibonacci retracement of the March to July rally Bit. A subsequent reversal back to 4325-35 would be a solid bullish signal and would almost certainly solidify a strong bottom.

While I have a short-term bearish bias, I’m prepared to be proven wrong. The best opportunities come from strong trends when monthly, weekly, and daily charts all show the same thing. That’s clearly not the case at the moment, with the S&P 500 trading in a volatile range, but there are plenty of possibilities. I can’t list all the possibilities ahead of time, but I will try to leave a comment below this article if the daily chart turns back to bullish.