Chart in Focus: Break of 20DMA on S&P-500 (1)

The chart of S&P-500, specifically the relationship between price levels (on a closing basis) and the 20dMA on SPX, is the current "chart in focus."

This index, along with several other majors, made a bearish break of its 20dMA on Monday. That move arguably confirmed the various sell signals that we'd highlighted over the previous week or two.

And, as long as the indices remain below their 20dMAs (we'd put emphasis on the plight of the king of all indices - the S&P-500), traders will want to assume that at the very least a correction of the recent (month-long) leg of rally is taking place.

If important support levels (as described in the weekly and nightly commentary pieces in the Members Area) are broken, traders will start to look at this move as a potential correction of the intermediate trend bull move off the March lows.

S&P-500 Hourly Chart

Let's take a quick look at the hourly chart of the S&P-500...

As you can see, the S&P-500 has been trending downwards and within an expanding channel for the past three and a half weeks. The lower end of the channel was touched just after the open today. If the channel holds (a brief breach of the lower line is permissible), traders should be on the lookout for a move towards the upper end of the channel (and possibly a breakout to the upper line) over the coming 1-3 sessions.

If the index trades below the lower line for more than say an hour or two, the channel will be defunct.

Traders will also want to keep an eye on RSI on the hourly chart; a potential positive divergence is present, as seen on the chart above. Note that hourly MACD is also at quite low levels.

If the lower line remains intact, upside targets of 745-750 or so come into the picture over the next couple of sessions. If the upper line is then breached, recent resistance at 780 and the gap at 825 will then be seen as near-term targets.

Have a good trading day!