With a US government shutdown in progress, and more importantly, a deadline for raising the US debt ceiling rapidly approaching, the US stock market as represented by the Standard & Poor’s (S&P) 500 index is focal, as it nears an important support level on its chart.
S&P 500 index: Support nearby
Recommendation: Wait for new buy signal
Trend: Short and medium term sideways. Long term up.
Strategy: Buy on a close above line 4.
n The S&P has pulled back in recent weeks and has now reached its 50-day moving average (MA), which provides loose support. Lines 1 and 2 support are not far away.
n Its short-term stochastic oscillator (on top) is relatively oversold, so a new rally is likely soon.
n Traders buy on a close above line 4, that is on a closing price above 1 692 points (spot price). (The S&P 500 can be traded via the futures or contracts for difference markets.)
n Once it closes above 1 692, look for a rally to retest its recent high of 1 729, with further potential to 1 735 (line 3). To the downside, support is line 2 (1 670), with line 1, that is larger support, slightly below it (1 665). A break of the latter will be bearish.
n Once the buy signal is triggered, place your stop-loss as a closing price below 1 670. Take partial profits at 1 715.
Colin Abrams is an independent technical analyst. To subscribe to more recommendations by the author, or attend his courses, go to www.themarket.co.za.