Swing Trading Strategies & Stock Picks Since 2003

I wanted to highlight a critical overhead resistance level - what I call the “Cradle Crossover” - that is occurring now in the S&P 500 Index.  A resolution of this structure would certainly give us clues as to what to expect going forward.

Let’s see the SP 500 Daily “Cradle”:

A “Cradle Trade” as I define it occurs when price is in an uptrend and then sharply breaks down through the rising 20 and 50 period exponential moving averages.  Check.

Then, if price remains under these averages for a few days (daily chart), then the shorter average - the 20 period - will cross “bearishly” under the intermediate period - 50.  That’s one point away here.

Finally, price will rally upwards into the “confluence crossover” (I call it the “Cradle”) zone where the 20 and 50 EMAs cross - and in this case, we see that crossover forming at the 1,107 area.

The main idea is that this zone forms an overhead wall of resistance and gives clues about the future when we see a resolution at this area.

This is a trade set-up, but if price ‘breaks’ the cradle, then we would expect to see a run to new highs in another of a long series of failed sell signals (see my prior post “The 12 Failed Sell Signals on the S&P 500“).

However, the general expectation - when price rallies into a key resistance level -  is that the resistance level will hold, creating an inflection down which can lead to a true trend reversal.

No one knows the future with 100% certainty, so that’s why we use reference levels as guideposts to assess supply and demand (buying and selling conviction/pressure).

For now, we need to watch the 1,110 level with great interest, as a key point that would mark a likely turning point in the structure - bullish (’bear trap’) if broken; but strong bearish bias if resistance holds and particularly if price swings down from here to form a new swing low under 1,070.

Corey Rosenbloom, CMT
Afraid to Trade.com