S&P 500 Chart And What It Means For Commodities…

| August 13, 2015 | 0 Comments

technical analysisS&P 500 Chart Tells An Intriguing Story…

Something big is brewing in stocks…

Despite some wildly bullish moves for individual stocks this year, the market as a whole has essentially traded sideways.  As a matter of fact, the S&P 500 is only up a mere 1.9% since January 1st.

If you’re an index investor, 2015 has been quite a bore.

But that may be about to change…

You see, the S&P 500 is forming an interesting technical pattern- one that foretells a substantial price move in the very near future.

Take a look…

S&P 500 Chart, a chart of the $SPX

Notice how the past few weeks of S&P 500 price action has the index consolidating into a consistently tighter range (contracting red lines).  With the important index trading into this restricted range, it’s a just a matter of time before it breaks right back out of it.

And once it does, we’ll likely we see a substantial run for stocks.

The only question is- which way will the market break?  After all, consolidation patterns like the one above are only indicative of looming breakout, not a direction.

However, there’s one technical aspect to the chart above leading me to believe the looming breakout will be to higher prices, not lower.  You see, the 200-day moving average (green line) is still moving from the lower left of the chart to the upper right.

In other words, the S&P 500 is still in an uptrend.

Since one of the most basic rules of technical analysis states- “A trend is more likely to continue, than to reverse”, I’m leaning towards the bullish side of the equity markets.

However, there’s always the chance Mr. Market throws a curveball.  If the S&P 500 breaks below 2,045, the odds increase quickly for a big broad market breakdown. 

What’s all this equity market information mean for commodities?

If the S&P 500, along with other major indexes, rally higher like I suspect, we’ll likely see bullishness start leaking back into the oil market.  With West Texas Intermediate (WTI) currently trading near the 2015 low of $42.50 a barrel, it’s the perfect time for bulls to start making a stand.

Of course, a rally in oil prices would be a great reason for oil exploration companies to follow suit, something I talked about in detail here.

But while a broad market upturn would be great for oil stocks, the same can’t be said for gold producers…

As we’ve discussed before, gold and gold stocks are suffering from pitiful performance this year.

If the S&P 500 breaks to higher ground because of the technical pattern above, the odds grow for additional downside in gold and the companies producing it.  After all, if investors are feeling more comfortable owning stocks, they’ll likely continue reducing their exposure to the yellow metal.

Now, before you get too comfortable, here’s the other side of the coin…

If technical support at 2,045 fails in the S&P 500, we could see a rather dramatic selloff in stocks.  It’s tough to say how low stocks would go, but the February lows near 2,000 wouldn’t be out of the question.

In such a scenario, it’s likely we see continued selling in WTI crude along with the companies producing it.

And in an odd twist of fate, gold will likely see a sudden rush of bullish interest.  In case you’re unaware, gold typically sees substantial upside in times of equity market panic.

How do you capitalize on these scenarios?

For ways to play the oil market via commodity ETFs, check out this article.  If capturing gold profits is more your thing, these ETFs are the way to go. 

At the very least, I’m expecting some big moves for stocks in the weeks ahead.  Stay tuned for more updates and ways to profit! 

Until Next Time,

Justin Bennett

BIO:  Justin Bennett is the head commodity research analyst at Commoditytradingresearch.com.  With over a decade of real world trading experience, he finds ways for you to consistently profit from movements in commodities and the companies producing them.  Sign up for our free reports and commodity newsletter at https://commoditytradingresearch.com/free-sign-up.

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Category: Technical Analysis

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.