Why this 'perfect' trading opportunity scares us silly

by Alistair Strang from Trends and Targets |

An interesting performer since the original Brexit vote, our chartist studies the S&P's potential

The S&P 500 (aka:spi) 

The S&P has been interesting since the original Brexit vote. For no discernable reason, it reacted to the UK's decision and exhibited a strong uptrend in the period since. At least, it did until last December, when it all went wrong for a month. Now, it's a happy index!
 
This is the stock market, a place where there's no such thing as a "sure thing". But oddly, the S&P has repeatedly painted a picture, daring traders to become excited if the market trades above 2,820 points.

Essentially, one of the most glassy of glass ceilings has formed at such a level, providing an almost no-brainer opportunity if the index moves beyond such a level. In this scenario, continued recovery to an initial 2,884 looks very possible with secondary, if bettered, at 2,954.

What really surprises (and gives almost dangerous levels of confidence) was that break of the red uptrend (see chart below).

In our experience, a break and recovery like this generally will be a precursor to some strong upward travel. This explains our interest in exceeding the 2,820 level as it allegedly makes a longer-term target at 2,954 extremely possible.

Obviously, we've a problem - it's all a bit obvious and the market never, ever, gives away free gifts like this. There's even the absurdity of our longer-term target visually matching (okay, bettering slightly) the all-time highs of October last year.

It's a perfect trading opportunity and thus, it scares us silly.

If triggered, the tightest stop is visually 2,720 points.

What happens if 2,720 breaks?

Initially, reversal to 2,646 will make sense. If broken, our secondary is at 2,597 but realistically, by reversing below a prior uptrend, adverse market conditions could drive it to 2,449 in a blink.

For now, it appears worth keeping an eye on for a move above 2,820. Given the index is presently 2,791, it's certainly teasing the prospect.

Source: Trends and Targets      Past performance is not a guide to future performance

Alistair Strang has led high-profile and "top secret" software projects since the late 1970s and won the original John Logie Baird Award for inventors and innovators. After the financial crash, he wanted to know "how it worked" with a view to mimicking existing trading formulas and predicting what was coming next. His results speak for themselves as he continually refines the methodology.

Alistair Strang is a freelance contributor and not a direct employee of Interactive Investor. All correspondence is with Alistair Strang, who for these purposes is deemed a third-party supplier. Buying, selling and investing in shares is not without risk. Market and company movement will affect your performance and you may get back less than you invest. Neither Alistair Strang, Shareprice, or Interactive Investor will be responsible for any losses that may be incurred as a result of following a trading idea. 

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation, and is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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