I want to take a moment to highlight what's going on in the broader market.
Right now, the market is at an important turning point that could determine the direction of the next big market trend.
Just check out the chart of the S&P 500 below, which also shows important support level at 2,800 (marked in blue).
Now, I know many investors ignore technical analysis, but there are many investors who follow important technical signals. And when enough large investors react the same way to the same technical signals, those signals become important.
In the book, traders are advised to watch round numbers, and when a decisive break occurs, the trend is usually well established. In the chart, 2,800 is a round number and the blue line shows that prices stopped advancing at that level three times at the end of last year.
When prices fail at the same level three times like that, technical analysts say resistance has formed. Resistance is a level where traders are almost afraid to buy. They have seen sellers come into the market at that level, and the concern is that profit taking will sink prices again.
The chart shows that prices hovered near 2,800 for several days last month before a breakout occurred. Now, prices are testing that level again. Traders in S&P 500 futures are watching this pattern and taking action based on what they see.
I know this is a simple approach to analyzing a chart, but successful traders I know use this type of analysis because they also all know people who do this. Chart patterns should really be so obvious that everyone can see them. That means guests on CNBC will talk about them. The fact that everyone starts watching a pattern is why the pattern becomes important.
The conclusion might seem unsatisfying. We need to wait for prices to make a decisive break. I'm looking for a close that's about 3% above or below 2,800, and I believe the trend will accelerate significantly from that level.
How I'm Trading Right Now
I think it's time for a lot of investors to start considering strategies that might be a little bit out of their comfort zone. One way could be the options selling strategy we use over at my premium newsletter, Income Trader.
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