S&P 500 Has Its Sights Set On The Bull Market Highs

| April 30, 2012 | 0 Comments

This week we’re taking a look at the recent price action of the S&P 500.

On April 2nd, the S&P 500 touched a bull market high of 1,422.  But things quickly took a turn for the worse.

Over the next few trading days, the S&P 500 quickly fell more than 4.5% to 1,357.  And then it spent the next few weeks consolidating near the lows.

But over the last week, the large cap index has turned much more bullish.

In fact, the S&P snapped out of its consolidation.  It raced from 1,366 to over 1,400 in a matter of days.  And it broke through multiple resistance levels along the way.

Now the large cap index has a clear path to make a run at the April highs.

Let’s take a closer look…

S&P Large Cap Index Chart

The red and blue lines on the chart above held the key to the markets next move.

The blue support line marked the recent lows.  And the red resistance line marked the March lows and the high of the April trading range.

If the blue failed to hold, the S&P would likely head down to test 1,340.  But if it broke above the red line, then it would set the stage for a rally back to April highs.

As you can see, the recent rally started on a test of the recent lows near 1,366 (blue line).  But buyers stepped in to send the market soaring.

Then the S&P cut through the main source of resistance at around 1,390 (red line) like a hot knife through butter.

No doubt about it, breaking through the red resistance line is very bullish.

What’s more, the bullish breakout is being confirmed by another indicator… the number of stocks making 52-week highs.

At the end of last week, we saw a large number of stocks making new 52-week highs.  That means lots of stocks are helping to fuel the recent rally.

Needless to say, multiple indicators signaling a bullish breakout is exactly the kind of thing bullish investors want to see.

Here’s the best part… this is a great trade setup.

Remember, one of the basic rules of technical analysis… once a resistance level has been broken, it becomes a new support zone.

In other words, now that 1,390 on the S&P is no longer resistance, it’s a support zone.

That makes 1,390 a good entry point for a bullish trade on the large cap index.

Keep an eye on this key support zone in the early part of the week.  If we get a pullback, take a look at buying call options on the SPDR S&P 500 (SPY).

Good Investing,

Corey Williams

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Category: Technical Analysis

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.