Will the S&P 500 Rally or Collapse? This Crucial Level Holds the Key

The S&P 500's rally from its Feb. 11 low near 1810 is showing signs of stalling. So far, the bears have been in control on two tests of the of the 1940-1950 area. That area follows a breakdown from head-and-shoulders top that can be seen in the weekly chart below.

The same fundamental issues that hurt stocks during the S&P 500's selloff from around 2080 in late December are plaguing them again. Oil prices are moving lower, and bank stocks looked weak during Tuesday's session.

That head-and-shoulders top pattern remains in place. If it continues to play out, the S&P 500 likely will target the 1600s. Investors must keep a close eye on the crucial 1940-1950 breakdown area. The index would have to take out this level in a convincing fashion to negate the head-and-shoulders top.

Next, lets take a look at the daily chart:

The daily chart shows recent support and resistance levels in greater detail. The S&P 500 has been navigating the 1810-1950 range over the past month. Note the confluence of resistance that comes into play in the 1940-1950 area. This is the area that ended the index's rally in late January. The declining 50-day exponential moving average and the 50% retracement area are in play here. So far the bears have held the line here. If the 20-day EMA breaks, the bulls will scatter again.

After playing a bounce up last week at The Informed Trader, we took profits and moved to a 100% cash position early this week. We want to see what the S&P 500 does at this very important resistance area before we make our next move.

TheStreet

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