Buy US SPX 500 Break Out

The US SPX 500 Index has confirmed a break out above resistance at 1,292 – 1,300, signalling higher levels not only for US shares, but share markets around the globe. Targets for the index are now

the previous highs around 1,350, and the twelve month high at 1,372.

A feature of markets (and especially share market indices) since the GFC is the number of false signals seen on charts. The US SPX 500 Index has been on my radar for two weeks, as it approached a key resistance level at 1292, and psychological resistance at 1,300 – you can see why on the chart from the CMC Tracker platform below:

Last night’s action was instructive. An initial rally, a sell off into negative territory, and then a rally back to close in positive territory suggests underlying strength. The close above 1,315 also keeps the index well clear of the break out level, adding confidence that this is a true signal.

Add in a better flow of US economic data over the last two months, an upcoming company reporting season and some interesting quant analysis that shows a greater than 3 % gain in the first three weeks of January has resulted in an average gain of around 8% by the end on April (on 10 out of 10 occasions since 1950) and there appears to be very good reasons to trade the US SPX 500 from the long side.

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
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4 Responses to Buy US SPX 500 Break Out

  1. daveold says:

    Yes tend to agree. The SPX is now into HVN balance area from March to July last year. Potentail heavy resistance area but looking at Dow already exceeded July highs today and Naz making new highs. The RUT is the laggard by far so maybe the best one for longs imo. I never expected to see new highs, My EW count called for corrective up from the October lows 🙂 However the divergences yet to be ironed out and take a look at non confirmation of trannies versus indu as yet.

    David.

    • michaelmccarthycmc says:

      yes – would like to see divergence over last few days resolved. Btw, sometimes use Fedex (FDX) rather than TRAN as a transport proxy – its showing a similar divergence

  2. Andy P says:

    Never forget risk management, there is no free lunch!

    • michaelmccarthycmc says:

      Agreed Andy – there is always a direct relationship between risk and reward. The beauty of a break out is that it gives clear stop loss levels – if the index were to fall below 1,300, I’d be cautious – below 1,292 negates the long call.

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