It's no secret this is the first year since 2011 that all major U.S. Indices end the month of January on the downside. Everyone engaged in the capital markets has their own reason why this sell-off has occurred. Regardless of the reason(s) why, it has become evident there are shifts in trader/investor sentiment. Traders have refused to pay the offer above $1850 in the $SPX, thus causing an obvious line of resistance at that level. At times, the beauty of trading can be as simple as straight line support/resistance. The chart below depicts support and resistance lines that have become price points of interest. These lines are formed based on where price has traded and how price reacted at that point. The extension or continuation of these lines is based on how price continues to react at these price levels. These lines are further enforced by a) multiple attempts to invalidate the price at that point; b) technical indicators that act as support or resistance measures; and c) classical bar chart patterns.
In regards to the resistance point at 1850, multiple attempts were made to breach that resistance, but to no avail. Price is now consolidating just below the 50-Day Moving Average and now this moving average becomes a major point of resistance (ironically the 50D is resting at a former support area, which is now resistance). Looking for patterns to emerge, the eyes may be playing tricks, but the most infamous of classical bar chart patterns, as what appears to be a Left Shoulder and Head are in place.
As price has decided to consolidate at a defined support level, the overall bias has "almost" shifted to the downside (note: determining bias shift is measured by Principles of Novy Market Flow). Understanding that a bias shift to the downside is occurring, should put long sided traders on guard to tighten stops or look to liquidate some positions. Granted this is not to say that a total market sell-off is occurring, but there is no logical reason why caution should not be taken at these levels. We may see a bounce slightly higher from these support level because price has to test the value area (50D-Moving Average) and the previous support line, which is now resistance. This "test area" sits in the price range of $1815. However, any further, immediate price damage to the market structure at these price levels, particularly at $1775, will turn Cautious Bulls to Fearful Bulls, which will lead to lower prices as they look to liquidate. #ThinkLikeABull
In regards to the resistance point at 1850, multiple attempts were made to breach that resistance, but to no avail. Price is now consolidating just below the 50-Day Moving Average and now this moving average becomes a major point of resistance (ironically the 50D is resting at a former support area, which is now resistance). Looking for patterns to emerge, the eyes may be playing tricks, but the most infamous of classical bar chart patterns, as what appears to be a Left Shoulder and Head are in place.
As price has decided to consolidate at a defined support level, the overall bias has "almost" shifted to the downside (note: determining bias shift is measured by Principles of Novy Market Flow). Understanding that a bias shift to the downside is occurring, should put long sided traders on guard to tighten stops or look to liquidate some positions. Granted this is not to say that a total market sell-off is occurring, but there is no logical reason why caution should not be taken at these levels. We may see a bounce slightly higher from these support level because price has to test the value area (50D-Moving Average) and the previous support line, which is now resistance. This "test area" sits in the price range of $1815. However, any further, immediate price damage to the market structure at these price levels, particularly at $1775, will turn Cautious Bulls to Fearful Bulls, which will lead to lower prices as they look to liquidate. #ThinkLikeABull