Why did $SPX hit a wall yesterday at 2850 and then reversed today? Because technicals. As discussed last week we had been working with bullish patterns on $SPX and $RUT. This weekend in TakeOver I declared this particular $RUT long set-up concluded, but was on the watch for a potential bullish or bearish resolution to come on two conflicting $SPX patterns with both continuing to have price risk higher. This conflict remains currently unresolved.

But small caps indeed stopped making new highs already this week following the conclusion of this particular long set-up on Friday and has retreated since then:

However $SPX went on to make further highs right into the 2850 price zone which was the price point at I urged caution following our previous bullish slant in recent weeks:

If markets were too scary to buy at 2,200 but now you got the FOMOs at 2850 you’re trading backwards.

— Sven Henrich (@NorthmanTrader) April 14, 2020

And indeed we’ve had a pullback from this level:

So why this particular level? Why the reaction? Why the caution? Because there was another technical pattern in play that gave us heads up that this price zone was important.

Mella had outlined it in March with $SPX trading at 2558:

As the pattern evolved she tracked it and honed more clearly onto the 2850 price target:

And $SPX hit 2851.85 before retreating:

It’s as precise as one can get. Like $RUT this $SPX long set-up closed and once you close a set-up and reach a technical pattern target the risk reward equation shifts and that’s what we saw today with the reversal. Hence this setup target provided a great opportunity to reduce risk on the long side and also switch to the short side.

Technical analysis is our craft hence I may well be accused of being biased, but I believe I’ve shown plenty of these setups now to show that even the most complex and confusing headline driven markets are adhering to technical patterns and structures and knowing these price pivots offer edge opportunities when deciding on how to position in a shifting risk/reward equation. In either direction.

The 2850 price level mattered because technicals said it would.

To view previous setups please visit the Technical SetUps section of the website.

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