Everyone is Watching This Key Resistance Level

The S&P 500 has rallied 10% in the past 19 trading days from the December 2018 lows. Avid chart-watchers are well-aware that we’re currently testing key resistance in all three of the major US stock market indices. There has been a ton of chatter in specific, about the 2,600 level in the S&P 500 index. The main reason this is such an important inflection point is that it represents former long-term support. Typically, former support levels tend to act as resistance once they are broken and retested.

Above is a thread on Twitter between two respected technicians discussing this level. Erin Swenlin is a CMT and analyst at Stockcharts.com. Dan Russo is also a CMT and Chief Market Strategist at Chaikin Analytics. Dan has been vocal about this level on his videos that can be found on here seeitmarket.com. In this Twitter thread, he raises the issue that the 2,600 level has been very well broadcast and a lot of market participants are expecting the price to fail here like clockwork. The market has a funny way of proving the crowd wrong. When everyone is on the same side of the trade the trade becomes too crowded and often fails. Veteran technician, Walter Deemer eloquently summarizes this concept in the Tweet below.

Another well-known technician watching this resistance level is Jeff Hirsch, editor-in-chief of the Stock Trader’s Almanac, a publication that analyzes trends, seasonality, and cycles in the stock market. He recently put out a brief note on his blog titled “Resistance is not Futile” in which he breaks down the resistance levels in each of the three major US indices. He mentions that for the Dow the key resistance level to watch is 23,900. He doesn’t specifically mention the 2,600 level in the S&P however, he does have it clearly labeled as the next resistance zone in his chart of the index. Below is the chart he uses to illustrate this level in the S&P.

So far in 2019, the S&P 500 index reached a high of 2,597.83 three sessions ago, just 2 points shy of 2,600, but close enough. The rally has been halted here and price has been consolidating the last two days as the market digests this level of overhead supply. Currently, the S&P 500 sits at 2,582.61, just 0.6% below 2,600.

It will be interesting to see what happens next at this level. Do we indeed see sellers, followed by a retest of the December lows? Some folks see it as a crowded trade or think that the fact that we haven't seen major selling pressure yet here is a positive sign. If the market were to be able to get back above major resistance it would be an extremely constructive sign to the bulls. In the meantime, it will serve you well to stay objective and follow price!