The Calm Before the Storm - S&P 500
There wasn't much change in the S&P 500 during this abbreviated trading week. The index keeps oscillating between the support and resistance that I mention week after week. Until the index moves significantly below 3,800 or above 4,150 we will just keep observing marginal movements that will test our patience and ability to sit out and wait for the best opportunities to appear.
The Keltner Channels (KC) in the weekly chart have been a reliable tool to predict the pullbacks that the index has experienced (yellow highlighted areas). The +1 KC has been acting as a strong resistance level since Mar/2022 and we are right at that level where sharp declines have started.
If we zoom in to the daily chart of the S&P 500, every time the index gets to the +2 KC or above, there's a sharp decline. We are about to get into earnings season, that's a period of the year where there can be drastic movements in the Market. If there are surprisingly good earnings results, the pattern that I have described in these charts, could finally be broken.
The Big Picture - Sideways Movements
How long does usually sideways movements last? Like anything else in the Market, nothing works 100% of the times. There have been sideways movements that lasted a few weeks and there was one that lasted almost 5 years. We live in an era of electronic trading where new players, like High Frequency Trading, accelerate the Market movements.
There was a powerful multi-year rally after the Subprime Mortgage crisis that started in Mar/2009. Even with that spike in demand, in 2015 the Market took a pause of two years (yellow highlighted area), before resuming its way up.
A much older sample took place in 1975, anything can happen in the Markets and that narrow sideways movement took almost five years before there was a major upward movement that only lasted for a few months.
Currently the S&P 500 has been moving sideways for around five months, the Market has its own timing, let's see how long it takes before there's a major movement in any direction.
Potential Trades
I'll be monitoring a few tickers during the next trading week, there's nothing very exciting at the moment. Very few breakouts, not all of them with enough volume to be attractive but if something interesting happens during the week I'll open a pilot trade just to get a better feeling of the Market. Most of the breakouts I have been monitoring are failing even if they initially look good. I still don't see an elevated risk appetite.
If we look at the index chart of the S&P 600 (small-caps), the riskier instruments have suffered a lot more than the large-cap companies. Currently the weekly chart of the S&P 600 is at the -1 KC and the one for the S&P 500 is at the +1 KC.
Summary
There's not a clear Market direction yet, the S&P 500 is testing our patience. During the next couple of weeks we are likely to see a pullback, the index is testing the +1 KC weekly resistance one more time. There's not evidence that the current rally will continue and turn into a strong multi-week trend. The New High and New Low numbers don't show a clear dominance of the Bulls at this point.
Day-traders and swing traders might have an easier time finding good opportunities during this period of time. Finding good trend opportunities on the long side it's proving a challenge, unless I find a really attractive setup, I'll just keep waiting on the sidelines.