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E-Mini S&P 500 Monthly: Chart Analysis

E-Mini S&P 500 Monthly: Chart Analysis
March 12
21:52 2012

Some analysts say the economy is in terrible shape while others say the market is coming back. Who should the general public believe? The best way to really know is to ditch the hype and look at the market yourself. The Standard and Poor’s 500 Index, commonly known as the S&P 500, is often looked to as a benchmark to assess the overall market. There are several market derivatives of this index, in this article we will focus on the E-mini S&P 500 index.

The Chart

Here is a monthly chart snapshot of the E-mini S&P 500 Index (Symbol: ES). The chart spans 10 years, from March 2002 to February 2012. This chart includes several technical indicators:
• 8 period simple moving average (blue line)
• 20 period simple moving average (red line)
• 200 period simple moving average (green line)
• Bollinger Bands (purple lines)
• Relative Strength Index (RSI) (dotted line)
• Volume (dark blue bars)

The Walkthrough

By looking at this monthly chart of the S&P 500 Index, one can see for themselves that the S&P 500 index has gone up drastically since the lows in March of 2009. The area highlighted by the yellow circle shows the first big green candle after a steep decline and the price continued to rise and broke the 200 period simple moving average. After breaking the 200 period simple moving average the body of the red candles begin to get smaller and have longer wicks at the bottom of the candles. This change in the shape of the candles indicates that the selling pressure was drying up and a pullback would occur soon.

Pullbacks are likely to occur at major support and resistance or at moving averages. In this case the price of this instrument went into the top Bollinger Band and halted. The next candle closed red on May 2010 and breaks the low of the prior candle, signifying that the market has reversed its direction. The market pulled-back to the 200 period simple moving average and found support. This is holding of the support area is key as it signals that the market has found a floor and will continue to move upward. If the market had broken the 200 period simple moving average to the downside, then this would no longer be a pullback but a continuation of the downtrend.

The Lesson

Since the lows of March 2009, the S&P 500 Index has seen strong gains. Going forward the S&P 500 Index is coming into resistance at 1374.84, marked by the red line on the chart. A pullback may be in order as investors and market makers take some profit off the table. However, if the market is to continue the uptrend it will have to break above this level, pullback to find support, and then continue to trade higher.


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