A Way To Look At Things Right Now.

Part of this post will be stealing some of the thunder from my summer letter originally sent to clients that will be published here on this blog in the coming days, but here's a way to look at the S&P 500 as it's currently trading.  I'm publishing this now because the investment world for a month has been abuzz discussing what it means as this index trades around the 3,000 level.  First off let's confess the truth that nobody right now  knows what's going to happen next. Stocks could power higher as many bulls predict or sell off again as the bears warn.  Instead of trying to prognosticate, let's go with what we actually know has happened.

We've experienced three failed breakout attempts at new highs in the last two years.  You can see them on the chart above in the red circles.  All three led to market declines.  Stocks have been consolidating their 2016-2017 gains for nearly two years now and in that kind of environment it's typical for stocks to backtrack when they're repulsed at important barriers.  What we do know is that the S&P 500  broke to new highs in June and has been flirting with that important 3,000 for about a month.  

Anybody's guess what comes next but if we're going to see a repeat of our last three failed breakouts then there are some pretty clear support markers that will give us a clue things have changed.  These are the blue horizontal lines you can see on the chart above.  Besides these, I think the red trend line I've shown near the right edge of the chart will be something most watched and commented on since this trend line is working off last December's lows.   It's also trading around some of these shorter-term support levels right now which should make it an even more important psychological level if we start to break down.   A break of that line will surely  be noticed by investors who pay attention to money flows.  

Further down on the chart, about 20% lower from where we currently trade, is the long term trendline that dates back to the 2009 lows.  It's that purple trend line on the chart. A 20% correction is probably what we could expect to see in a really bad trading environment so that could be an important level to watch as well.  Also notice how that long term trend line is straddling the 200 week moving average.  

Watch and see how stocks react to those levels to get clues as to how we might trade.

Chart is from Tradingview.com although the annotations are mine.  Also you can double-click on the chart above to make it larger.

*Long ETFs related to the S&P 500,  in client account and personal accounts, although positions can change at any time    We reserve the right to change these investments without notice on this blog or via any other form of verbal, written or electronic communication.