Today we are looking at bearish price patterns and spread betting strategies. We will base this primarily on the S&P 500 as that is the primary stock index that we focus on. The reason we do this is that the S&P 500 is the real stock market and the other indexes tend to take their cues from the S&P 500.
There have been a few key levels and indicators in the S&P 500 that we have been writing about of late. We have previously been focusing on resistance from 1100 when the market was below that level and also the major resistance at 1129.
Friday’s close on the September S&P 500 contract was bang on 1100 and this week continued the recent short term strength and pushed up above 1100 and the 200 day moving average. This was relatively bullish short term and the market continued higher to 1118 on Tuesday. Critically, this move fell short of resistance at 1129, so the short and long term trends remain down. This means that only bearish spread betting strategies should be considered at this time as the odds favour lower prices.
Considering the recent strength and the fact that this market cleared 1100 and the 200 day moving average we should perhaps have seen more follow through and an actual test of 1129, but the rally fell short. We also have an evening star pattern formed in this market over the last 3 sessions, which is a bearish reversal pattern and suggests a top in the market. When we have an evening star, we use the top of the pattern as resistance, which in this case is Tuesday’s high of 1118. If the market moves above 1118, especially on a close, then this pattern is negated and a likely test of 1129 resistance will probably follow.
Yesterday’s price action also took the market back down towards support at 1100, with a low for the day at 1099.5, before closing at 1102. This is once again right on the 200 day moving average as well as support from the 1100 level. In the short term then this market can clearly go either way and the levels to watch are 1100 to the downside and 1118 and 1129 to the upside.
As long as 1129 resistance holds, this market is in a bearish set up and the long term trend is down, so we’ll continue to favour spread betting strategies from the short side and reject longs for now.
One other point of interest, certainly for UK residents who use spread betting is the bearish formation on the FTSE. The FTSE is not a market that I like because of its lack of trending properties, but I know many traders in the UK follow it. On Tuesday we had a shooting star pattern, which confirmed resistance at 5385, followed by a bearish engulfing pattern on Wednesday. This suggests a top in this market, and as long as 5385 resistance holds then bearish spread betting strategies should also be favoured here. The long term trend in the FTSE is also down, as with the S&P 500.
Until next time, good trading