Tuesday, 27 March 2012

SPX 500 heading into the 1,420 to 1,440 resistance zone

Europe is moving into a recession, which is being exacerbated by austerity measures. Data came out Thursday that the PMI in several European countries and China contracted. Ireland missed growth targets, and central banks around the world continue to print unprecedented levels of fiat currency as if printing money and creating more debt will solve a debt problem.

All of these issues are concerns, but ultimately price is the final arbiter in the world of flickering ticks. From these eyes there are two possible outcomes for the price action in the S&P 500. The first outcome, which I believe is more likely, is a test of the 2011 highs that results in a snap-back rally that takes us deeper into the 1,420 to 1,440 resistance zone. The chart below demonstrates the bullish potential outcome.

SPX Bullish Outcome

Price action at some point will back-test the 2011 highs, and the reaction at that point will be critical. Generally speaking, price action does not break a key support or resistance level on the first attempt. Usually the second or third attempt will result in a break of a key support / resistance level.

In this case, a test in coming days would likely result in a bounce and reversion to the previous trend. A possible, albeit unlikely outcome would be a break below the 2011 support zone, which would then come close to triggering a trend change. The daily chart below demonstrates the bearish potential outcome.

SPX Bearish Outcome

Read more: http://www.minyanville.com/business-news/markets/articles/price-action-Dollar-Index-market-charts/3/26/2012/id/40068#ixzz1qJXoA0ox

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