It’s Tuesday morning, about two and a half hours before the regular session opens at 9:30 a.m. EST for the U.S. equity indices, and the S&P 500 futures are trading around 2472.50. The chart below shows 30-minute bars going back to the beginning of last week.
This week is the last full week of the month, and with the S&P 500 so strong, we expect some profit-taking this week. However, we recognize that the trend is upward, and we want to participate.
Therefore, we believe that if this market shows end-of-the-month weakness, it will be an isolated event, and we think that buying the dip is the trade that most likely pays.
The grey shaded region on the chart from 2460.50 to 2463.75 highlights an area that was initially resistance but then turned into support. We think that if this area is tested this week, it will be good support to lean on, buying the dip while anticipating new all-time highs.
However, another scenario to consider would be if price doesn’t go lower first. Currently, this market is testing the green trendline, which is drawn from Thursday’s all-time high to Friday’s lower high. We don’t think this line represents resistance, but that it is indicative of healthy price action. Buyers should be able to break this trendline, and if that is done, we would target the 2476.25 all-time high at the lower red line.
Above that all-time high, we would aim for the 23.6% extension of last week’s range at the upper red line, which comes in at 2383.00 for the weekly bullish target. Not until price reaches that area would we consider being short this market.
To sum it up, we are bullish, looking to buy some lower price areas; but we are also preparing for the possibility that price may not get to our buy area, so we must consider buying the breakout of the trendline, targeting the all-time high and then the weekly extension.
Traders should be aware that today begins the-two day meeting of the FOMC, which may add volatility to the markets this week, along with other regular items on today’s economic calendar.