Trend Channels

Last week, we discussed the lower trend-line of our rally up from March 14 on the S&P 500. This trend-line was tested by the lows of May 1, before the index resumed its upward trend. The chart below depicts the channel formed by the upper and lower trend-lines as the formation continues to unfold. The upper trend-line of this channel was at 1516.20 on Monday. It has a slope of roughly 2.45, which will extend increase this potential source of resistance to 1518.65 on Tuesday.

One other potential source of resistance can be found in the rally from July 2006 to February 2007. If we draw a line across the lows of what represented Wave 2 and Wave 4 within that larger price formation, we can see a trend-line that extends up to the highs set last week on the S&P 500. This line extends up to 1517.01 this week.

This gives us a confluence of two important trend-lines for the S&P 500 that happen to cross near an important date from a time cycle perspective. Furthermore, we discussed the importance of the 1515 area from the perspective of proportionality and Fibonacci price projections in my post on April 29. We could even bring in some longer term price projections that suggest resistance around 1522. It will be important to watch how the S&P 500 behaves as it enters what must be viewed as an important area in terms of price, pattern, and time.