In the market Friday the S&P had a third day of slow creep up where it closed above the multiple resistance lines I have focused on in my recent articles. Now that the S&P is technically above resistance everyone is wondering just how much higher it can go in an overbought condition.
Taking a look at the two small charts below, I have posted an overview of the current run.
Chart 1: the S&P chart I posted in my October 21st article showing the large EMA setup they constructed to provide the lift power for a sustained short squeeze.
Chart 2: shows the run up with our swing trade EMAs applied. Our entry was at the up cross marked with the small green dash. Our exit will be whenever it down crosses. While there have been several close calls at multiple resistance points we are still in the trade even though it is getting overextended because until it down crosses the trade is still on.
If the S&P continues to inch higher we plan on going ahead and selling in the 2058 area for the reasons I will outline in the chart below. Taking a look at the large chart below, I have marked in the overextended peaks for the past two years. The heavy green line is the Day 324 EMA which I have discussed numerous times through the years on my blog showing how this line is considered midterm neutrality for stocks and indexes. An "overextended condition" can be measured numerically by how many points the S&P is currently above the 324 EMA line. In peaks A through E I have noted the number of points the S&P reached up from its 324 EMA line before the rubber band became stretched all it could go and the market decline began. If you study the chart you can see that once the S&P gets 200 points above the 324 EMA line it is basically living on borrowed time with the 217 to 227 range being the peaking area. At Point F, I marked in the next potential peak at S&P 2058 which would be a 215 point extension. Looking back we see that it often moves another 10 points higher than the line before the peaking day which would be in the +225 area possibly another week or so out if the creep up move continues. We are actually targeting the red line this time around 2058 as the market's steadiness when not in a short squeeze has diminished somewhat since the October plunge. Friday's close is 187 points above the 324 line. In the bottom corner of the chart I posted the simple math showing the 2058 red line target less Friday's close which was 2031 leaving a net of 27 points left to the upper red line.
Another 27 points anyone?
Trade well my friends
Alan
