Tuesday, October 2, 2012

Trading the Largest 16 Year Stock Market Trading Range: Major Market Top or Breakout

The U.S. Stock Market as represented by the S&P 500 Index is in a major 16 Year Trading Range from 1997 to 2012.

The Low of the trading range is around 666, which was reached January 2009.  The S&P 500 last reached that level around the 1996-1997 timeframe.

The High of the Trading Range reached a level of 1576 on October 2007.

The S&P 500 is currently trading at 1444, around 9% below the all time highs.

There is Major Stock Market Resistance around the 1550-1576 level.

One Trading Range Strategy could be:
1. Take Profits or Sell the S&P 500 between here and the 1550 to 1576 level.

2. If the S&P 500 has a solid breakout past 1576 with confirmation, Buy the S&P 500 with a Stop Near Support (around 1576).

3. If the S&P 500 reaches near the bottom of the trading range channel (a drop of 54% from here (1444)), Buy the S&P 500 (or cover the S&P 500 Short Position)

4. If the S&P 500 breaks down below the bottom of the trading range channel (below 666) with confirmation, Sell the S&P 500, with a Stop Near Resistance (666).

So even if the S&P 500 stays within the Large Trading Channel, that could still mean very large drops (or rallies) in the Stock Market as represented by the S&P 500.

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