Trading the S&P 500 at Its Highs – Where to From Here?

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We’ve been stuck in a strange trading environment for a while now. Although the S&P 500 continues to grind higher, it hasn’t been an easy trade.

The move higher has been slow with bear markets in high-growth tech stocks and cryptocurrencies. Metals, consumer staples, financials and industrials have done well, as have value stocks.

Large-cap tech is acting better but it’s still very much a mixed bag. While Nvidia  (NVDA) – Get Report and Facebook  (FB) – Get Report are cruising higher, Apple  (AAPL) – Get Report and Amazon  (AMZN) – Get Report continue to languish – although Apple’s WWDC event Monday could help.

Then you throw in commentary from the Federal Reserve, worries over inflation and the new global tax plan and it only creates more headlines.

This waxing and waning of headwinds and tailwinds has given both the bulls and the bears ammunition to justify their position.

Perhaps what has tipped the market into the bulls’ favor has been solid earnings and the easy-money policy from the Fed. As we continue to melt higher into summer, let’s look at the S&P 500.

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Trading the S&P 500

Daily chart of the S&P 500.

Chart courtesy of TrendSpider.com

It’s worth noting that you can’t buy shares in the S&P 500 index. While investors can trade options on the index, something like S&P 500 futures or the SPDR S&P 500 Trust ETF  (SPY) – Get Report will need to be used for most investors.

Amid the S&P 500’s grind higher, the index has largely ridden the 50-day moving average higher. We saw the index visit this key measure twice last month and both times that test resulted in a meaningful bounce.

On the upside, bulls face a tough test with the 4,238 level. This mark has been resistance several times over the last month and each time, it has rejected the S&P 500.

If it can clear this level, we could see a move up toward 4,300. If the index really gains momentum, the 161.8% extension sits up at 4,350.

On the downside, I want to see the 10-day and 21-day moving averages act as support. This was the case late last week, as the index found its footing on the 21-day moving average and the 61.8% retracement of the current range.

The latter comes into play around 4,169 and that level has been meaningful since late April.

Below 4,169 puts the 50-day moving back in play. If that area is tested, it will be a mild dip. However, a break of the 50-day moving average could bring the May lows into play, along with the 21-week moving average.

The bottom line: Watch 4,238 on the upside and 4,169 on the downside.