After SP500 futures tested massive Gann resistance on a daily chart near 4250, the market began consolidation in a tight range. And it formed a flagging formation in recent weeks. It is not a secret that such long consolidation in a tight range ends with a massive breakout.
Moreover, if such consolidation happens near Gann resistance on a daily or weekly chart, the next we see a very aggressive move. In fact, the longer such consolidation takes, the stronger the move is. The key question is will it break out to the upside or to the downside?
I am not a fan of guessing, especially when tools, like Cycles, Advance-Decline Line, Insider Accumulation, Interest Rates Forecast, Intermarket Forecast are giving different signals. The market needs a fundamental trigger to establish a new trend or more time to build the setup. The FOMC meeting in June could become such a trigger. In case they pull back their purchasing program, we can see massive profit booking in the stock market. But still, it is what might happen.
I believe it is good now to stick more to price action. Based on a daily chart a clear break above Gann resistance 4250, is a bullish breakout with the next target near 4400 – 4500.
The cycles predict establishing a new trend in the coming weeks. So, traders have to get ready for coming opportunities whatever side it breaks. For bearish breakout, use channel up on a daily chart. Based on the historical studies, the best price action identification of reversal on SP500 is channel breakdown + sustaining below MA50 on a daily chart. Additionally, traders can use Insider Accumulation. It will decrease the number of trades but increase winning rates. Consider it an additional filter for breakout trades.
Even if the stock market breaks to the downside, it should be just a pullback. Until the dynamic of major economic indicators stays positive, there is no real reason to talk about the crisis and new recession. Certainly, the situation can change, but it is not going to happen in one day.
Interesting historical data
With the proper investment strategy, the stock market is a game where the odds are massively in your favor.
On average, 9 out of every 10 years shows an increase in returns for the top 500 companies. From 1929 to today, for every year of losses, the market spent nine years gaining, with a long-term average return of 8% a year. The worst crash happened in 1929. The market lost 83% of its value.
The second worst crash happened in 2009. (We were all alive for that. We’re part of history!) In 2009, the market lost 50% of its value. But even so, from 2009 to today, the market has grown by 400%.
SP500 – Aggressive Break Out On Its Way by Inna Rosputnia
Wishing you a great week!
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