Home > Short-Term Trader > S&P 500 Looks Ugly Any Way You Slice It

S&P 500 Looks Ugly Any Way You Slice It

Call me Captain Obvious, but Friday's failure put the ball squarely back in the the short-seller's court.  Should we break the May low, which looks all but done, another jet lower would satisfy those who follow Elliot Wave Theory by completing a five wave sequence since the peak in April. By theory, the 3rd and final impulse wave (wave 5) completes a trend before a trend change takes place. (When I say trend change, I am not referring to a rejoining of the cyclical bull market. Rather, a counter-trend rally which will at some point set the market up for another 'short de jour')

When looking for longer term support levels I like to look at the S&P 500 Cash Index, instead of futures, because I don't trust the continuous futures contract which takes into consideration rollovers.  Support in the cash market comes in at the prior low of 1040, then 1030 & 1020 are both pivot levels from 2009, after that 1008 is the 38.2% Fibonacci retracement point from the '09 low to the April peak, followed by the psychological level of 1000.

Spx 60

Should a significant breach of the May low occur I will be carefully monitoring a plethora of breadth and sentiment indicators for cues as to when to lighten up the shorting campaign and possibly look to go the other way.

The other scenario, which I see as less likely, is a consolidation of the May sell-off creating a 'flat right shoulder' on a large head-and-shoulder pattern. As much as everyone has discussed the potential for a Head-and-shoulders formation to take shape I wouldn't be surprised if at this very moment one of the major publications isn't working on a mock cover layout featuring this pattern just in case we get a nice pretty right shoulder. I'm joking of course, but the popularity of this pattern right now makes me think either a) it won't come to pass or b) it won't come to pass in a very fashionable way.

Head and shoulder

Bottom line – Leaning short……but this is a trader's game right now, so be nimble!

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