Trading S&P 500 Index Price Trends: The Basics

Standard & Poor’s 500 index futures have been very popular in the past decade, after the US Securities and Exchange Commission’s model day trading rules triggered the outflow of retail capital from stocks to CME Group’s 24-hour electronic trading platform Globex. Trading volume hit a record high in 2011 due to the transition of global risk from a single security to a wide range of macro instruments, and the explosive growth of ultra-modern derivatives. Together with the Nasdaq 100 and Russell 2000 index futures, the trio has drawn a reliable road map for active traders seeking intraday trading signals.

In the hours between the close of the US stock market in New York and the opening of the next morning, futures trading captured market volatility on Asian and European exchanges. In turn, these will produce a short-term convergence-divergence relationship, which can predict price trends during normal trading hours.

The Standard & Poor’s 500 Index anchors these relationships and is listed as the most popular stock futures contract in the world, usually predicting a wide range of directional impulses in the absence of other contracts or market signals.

Active traders have two common ways to play S&P 500 index futures. First, directly react to typical technical analysis signals, including breakthroughs, failures, and callbacks. Second, apply feedback to other tools in a highly relevant environment in which thousands of stocks, currencies, and other world markets are traded in the same or opposite direction to futures contracts. This synchronicity is common at key turning points when institutional capital allocates risk based on broad macro power rather than the attributes of individual securities.

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Price progress and S&P 500 signal

Let’s take a look at the typical price movement of the S&P 500 Index and how it can predict a sharp decline while providing a series of short-term buy and sell signals for active traders. We will use a 60-minute 24-hour chart, which is the main chart for futures traders because it captures overseas events while highlighting key levels not touched during the US trading hours. The contract rose from 2082 to 2118 between February 20 and 25, and then fell. The Fibonacci grid extended over price fluctuations captured the gradual deterioration that led to the March 6 crash.

2100 is set at the 50% Fibonacci retracement level, highlighting its importance because the price fell back and tested the support level (1,2) twice before the final high, and then tested the support level three times (3,4,5) . In turn, these five tests established a broader support area between 2100 and 2105 (blue line).After the fifth test, the contract rebounded to a four-day high (6) and sold off, establishing the first Low high Since February 20. This is a typical sign of weakness, as outlined in the Dow Theory more than 100 years ago. Although initially observed in DJ industry and railroad averages, it performs well as a signal generator on both intraday and daily futures charts.

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The lower high gave way to a sell-off that broke the support zone (7). The first violation rarely results in an instant trend change in the futures market, because the algorithm that governs Globex prefers to clear the order volume of both parties before entering a broad directional impulse. This bias led to a short squeeze above the support zone (8), which attracted aggressive selling pressure and formed a deeper low in the next trading day (9). This low tested the February swing low (red line) and found support at the 0.786 retracement level. The contract rebounded for the last time to support and printed two failed tests (10,11), then accelerated when it broke the previous low, and dropped another 20 points within four hours.

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The timeline of events illustrates how the price movements of the S&P 500 are aligned with key macro impulses that are usually on the other side of the planet. This tells careful traders to pay close attention to economic and political catalysts when institutional capital may execute the most aggressive strategies. It is also very enlightening when bullish news such as the European Central Bank’s qualitative easing and strong US employment data failed to push the contract above the breakthrough support level as it did on March 5 and 6.

Bottom line

The S&P 500 index futures contract is very suitable as a road map for short-term market timing and direction. Look at the 24-hour 60-minute chart because it establishes support and resistance levels and aligns risk exposure with the test after the economic and political events of market changes.

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