This weekend I have reviewed the high-level plan for the S&P500 and I shared it with my newsletter subscribers. Given the importance of price behavior in the coming days on whether we are going to get a new rally in equities into 2013 or a collapse of the indices, I decided to share the content on the blog as well. I do not like terrifying people waving the possibility of a collapse in stocks, but it is a scenario we need to keep in mind. However we also have a more positive scenario and it is on the latter I am going to focus this week.
The two scenarios provided in the last published trading plan and in the November 22nd mid-week update (see email as well if you are a subscriber, otherwise look to the left and subscribe my free newsletter) are still valid. I believe it is very significant that price did not find, last Friday, a strong resistance in the 1404 area as we would have anticipated. This could well change this week and, indeed, this morning the 1404 participation on the downside is making feel its presence on price.
With a limited participation on the downside, price could easily continue higher slicing through the resistance area starting at 1404. If this were the case we would need to move our attention to scenario 2 (see picture below, the same of the old trading plan published last week on November 18th) which, as you will remember, was not my preferred one last week, but it could still take place. The first few days of this week will be key.
The second scenario (see picture below) takes place if price is capable of violating the 1419 level on the upside. In that case the crash scenario would be removed and price would move lower to retest the 1350-70 or higher area before starting the new leg higher. In this case there would be no divergence between the Euro and the S&P500, and the S&P500 would have the potential to print new highs this year or at the beginning of 2013, it would move together with the Euro.
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