In this issue of the Art of Trading I am offering an analysis of the current S&P500 market and where significant opportunity may exist this spring. I would like to first explain the short-term view and then open up to a multi-year macro view that I believe you will find to be quite compelling and perhaps very profitable.

The S&P broke above Wednesdays high on Friday March 23rd and retreated to the Pivot for the first time in 5 sessions. It is very reasonable to assume that the S&P is overcooked at these levels (75 points up in 6 sessions) and is due for a pullback on the daily bars that retraces most, if not all, of the move made on last Wednesday after the FOMC announcement. Without any significant economic announcements until this Wednesday we may have to be extraordinarily patient.

Our definitive line in the sand for the week beginning March 26th will be last weeks high of 1451.00 in the June futures contract. Above this level we have R2 at 1454.00 and the .786 retracement from this months low to the high of the year at 1455.50 which should serve up significant resistance. Weakness that breaks Fridays low of 1444.50 should offer resistance between 1444.50 and the Pivot at 1447.50 to maintain a short bias.

Look at the chart below and notice that in the land of interest rates, Notes have already retraced 100% of their move up from the FOMC announcement.

Now look at last weeks S&P chart below and you can see that further ascent has been a struggle and that a capitulation in momentum is inevitable. Last months correction in the S&P is far from completion and it is important to understand that a "shot over the bow" such as last months selling has historically lead to additional and more extreme selling.

Now for the macro view. Take a look at the long term chart of the S&P cash index ($SPX) below and notice the percentage retracement's of previous corrections and the propensity to trade through the 200 day moving average (DMA) to get a clear understanding of why I suggest that last months selling lacks "completion." I used a weekly chart to pack in as much historical data as possible using a simple 43 period moving average which mimics the 200 DMA (the blue line) within a point or two.

Notice in the last 3 years the S&P has returned to the 200 DMA but also notice that in year 2000 extreme volatility lead to the 200 DMA before making a new 52 week high and ultimately the now infamous correction known as the burst of the bubble. In no way am I suggesting a repeat of year 2000, but as can clearly be seen in the above charts the S&P should have additional selling to digest in the near future.

With the 200 DMA of the S&P cash index currently at 1354 and Fridays close at 1436 there exists an 80 point difference that offers a strong risk to reward ratio for traders that contain risk. Use a line in the sand each day to trade against and continually think “big picture” to ultimately experience this strong risk to reward ratio.

At the Direct Access Trading Academy we have a number of free educational resources available to help you to stay focused on the big picture including our daily market analysis from DATA Morning Call which is available free for 30 days by clicking HERE and the DATA Chat Room with live charts by clicking HERE and free DATA educational materials by clicking HERE including a professional trading plan and a free consultation. Take advantage of each and find out why the Direct Access Trading Academy is your source for definitive trading solutions!

Trade with Knowledge!

Burr Jennings

Direct Access Trading Academy

941-364-3600

www.datacademy.com

To learn more, attend a free DATA workshop by calling 941-364-3600 and find out what statistically works in trading instead of what others may simply think or feel will work. As always, give us a call or email info@datacademy.com if you have any questions.