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Market Update: What to expect next

Petra HessPetra Hess ·

On Tuesday I wrote about the simplicity of support and resistance breakout points. I alluded to the SPY breaking above a key resistance level which it formed over the month of August…

If you missed it, you can read it here

Today I want to take a minute to and further continue that discussion…

In the past few days, the SPY has made a move up to the next resistance level, which also happens to be an all-time high.

Now what?

I am going to walk you through a chart of the SPY… and teach you how we can use support and resistance to gauge the next move in the market…

 

Headlines vs Breakout

 

So here we are… back to all-time highs…

To recap…

I showed you the chart below on Tuesday… below you can see that the SPY created a range over the course of the last month, between support around 282 and resistance just under 295.

On the chart you see the SPY breakout point, creating a move above the resistance level… and I mentioned that many times a stock breaking a major resistance level will move up to test a previous high (orange line in the chart).

 

 

So what happened next?

Well over the next few days, the SPY did just that…testing previous highs.

Look at the updated chart of the SPY below…

You can see where it reached its all-time high (orange line) and stalled out…

 

 

So what pushed the SPY to highs? Headlines… or a Breakout…

We had a break above major resistance… as well as major news headlines to propel it…

The big headlines involved:

 

  • The ECB decided to lower rates and initiate a major bond-buying program to stimulate the European economy
  • The Fed is also expected to lower rates at the upcoming meeting
  • And Trump decided to help this time by delaying tariff hikes by two weeks as a gesture of goodwill

 

So was the rise to highs due to the resistance breakout or to the news?

Well… it’s both…

The technical analysis answer would be the breakout of resistance lifted the SPY to test a previous high/ resistance level.

In the news-driven market we are in… you would say it was definitely the headlines…

This is what I want to talk about…

One might argue that the resistance break is meaningless being that big news headlines make a lot more sense in market moves…

But that’s the simplicity of resistance breakouts…

We didn’t need to know the news… what we know is that the SPY broke above resistance and therefore had a high probability to test previous highs…

Resistance and support levels form based on supply and demand… and to break above resistance… traders are just waiting for the right things to happen to create a supply increase…

…in this case economic stimulus and tariff delays… 

That’s the beauty of technical analysis… the news is built into the levels, so you don’t have to interpret it…

The chart does that for you…

Let’s get down to it… what do I expect to see next?

Another basic theory is that when a stock breaks above major resistance, the previous resistance often times becomes a new support level…

As I mentioned the breakout point was above the major resistance level of 295…

This sets up 295l as a potential new support level for the SPY.

This will be an important level to watch if we are going to see the SPY break above the all-time high for a continued move up…

I don’t expect the SPY to just rip above the highs without some resistance… not that it can’t blow right past…

But the more likely scenario I am watching for is a pullback from highs, due to resistance… and then I’ll be watching very closely for SPY to hold above the previous resistance level of 295…

Thus to confirm it has become a new support level…

If we get confirmation of support… I will then be looking for another move to test the highs…

What’s it all mean?

Simply put… you don’t have to follow the news extremely close and even better… you don’t have to be a master at understanding the dynamics of economic policy or how news headlines affect the market to be a profitable trader…

I let the charts do the talking and you should too…

I always have my eye on the charts of the overall markets as well as the futures… and I am always scanning for new setups to trade…

I do this so my members don’t have to and I share it all in my chat room and live trading room every day… if you want to forget about the headlines and let the charts do the work… this is the place for you…

JOIN NOW

 

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