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Today’s Trading Edge: S&P 500 index tentatively breaking above 200-day SMA

Posted by Joseph Trevisani on Oct 23, 2015 8:32:27 AM

U.S. equity markets received a boost after European Central Bank President Mario Draghi explained the Bank is exploring ways to increase stimulus.  As expected, the ECB left monetary policy unchanged, but concerns regarding low inflation, slow progress on structural reforms and overall weaker global demand, will likely force policy makers to consider further accommodation in the near future. 

The S&P 500 index futures daily chart shows the recent rally has price tentatively breaking above the 200-day SMA.  Price has not been above this level since mid-August and if the bullish move continues, we could see a major run target the $2100 zone.  It is around that area that price could form a bearish ABCD pattern.  Point C is targeted with the 78.6% Fibonacci retracement level of the A to B rally.  Point D and the potential reversal is targeted with the 161.8% Fibonacci expansion level of the B to C move.  If valid, we may see a modest pullback.  If the pattern is invalidated, further upside may target the $2,130 to $2,150 area. 

If price action is unable to maintain both the 100 and 200-day SMA range, we could see major support come from the psychological $2,000 level. 

The trade: Buy E-mini SP500 at $2,050, with a stop loss at $2,025 and a take profit at $2,100.  The risk/reward ratio is 1:2 

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