S&P 500 – Where Am I Heading?

Oh – I missed this rally!!! Most of us are cursing our decision not to ride the New Year rally which actually started in December, 2011 itself. Who wants to take a chance in this bleak global scenario? Well very few!! But those who had, concentrated on their charts and took decision accordingly. At the end of the day, trade what you see, not what you want to see.

S&P 500 - Where am I heading

Since, 19th December, 2011, S&P 500 has rallied continuously without a pullback and is taking support at 21DMA and moving above it. It is moving in the upper part of a channel which has taken more than 4 months to build. But it is also moving in a rising wedge which is getting narrower. Oh – is it a chance to go short?

Well I analyze various scenarios for you before you take a plunge!

Any kind of negative events folding out of Greece and Eurozone in coming days will create a bearish scenario and a reason for the narrow rising wedge to break downwards. It will not only test the 55DMA but the psychological level of 1300 which will create volatility as bulls and bears will fight it out to control the territory around it. S&P 500 has already closed lower on the weekly charts for the first time since the last week of December 2011. Oscillators are also in the over-bought zone since then. Well, if this scenario folds out, I don’t rule out a sustained sell off in the coming days and a test of 1275 below 1300 levels. Will the sell off be a vertical or a consolidated one – only time will tell?

An alternate bullish scenario based on positive outcomes from Greece and Eurozone will fuel a sharp rally towards 1355-1360 and then towards May, 2011 highs of 1370. The 100% Fibonacci extension from point C (retraced point for the A-B move) i.e. 1150 also points towards 1375. From there, any scenario of S&P testing the psychological mark of 1400 is not ruled out. But from here on, some sort of pullback might take place to sustain the rally upwards. So, it might test the price area of 1330 or around 21DMA before taking off.

But these two scenarios might throw some surprises as well!!

In the bullish scenario, though S&P 500 rallies, it makes a double top pattern at or around the May, 2011 highs and triggers a reversal. In the bearish scenario, though S&P 500 tests 55DMA and 1300 levels, it bounces off for a rally towards May, 2011 highs.

Anything is possible in the short-term and the risk is unbearably high. So, trade with caution and confirmation for the week and hedge it well.

Now it’s your turn…..

Feel free to share your experience and thoughts in the comments area.

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