Macro Wrap – Massive Long-Term Failed Breakout $SPX

I had a mental alert go off on Thursday and Friday as we neared the 1575 level in the S&P 500 index.  That was the previous all-time high for the index.  It was the level from which many expected a pullback earlier this year.  At the time, this chart was in vogue:

20 year monthly chart of SPX, up to 04/01/2013, Courtesy of Bloomberg

20 year monthly chart of SPX, up to 04/01/2013, Courtesy of Bloomberg

Of course, we all know what happened next.  The SPX blew through 1575, and added another 100 points to the all-time high for good measure.  But today, we are right back to 1575.  The low from Friday was 1577.70, and right now, SPX futures are indicating an open around 1577 in the SPX cash index.  We could be re-testing the breakout level, and buyers become more aggressive here, holding the long-term breakout in tact. Or the 1575 level breaks, and the chart takes on the look of an ominous false breakout:

20 year monthly chart in SPX until today, Courtesy of Bloomberg

20 year monthly chart in SPX until today, Courtesy of Bloomberg

From the title of this post, you can tell which scenario I think is more likely.  I have viewed the market as running on fumes since mid-April.  Regardless of what I think though, we will find out soon enough whether the long-term breakout fails.

One last point.  I talk to, follow, and read commentary from numerous traders around the world.  I have been surprised by how few have mentioned the 1575 level and the potential for a false breakout.  I am sure many have noticed and are planning accordingly, but I’ve only seen one other prominent mention of it – by J.C. Parets of AllStarCharts on Friday.

Considering how many traders were watching this breakout level 3 months ago, I am confident that a lot of long-term positioning was based around the breach of 1575 to the upside.  A push back below could trigger a lot of long-term sell stops.  As is customary with markets, this important long-term level coincides with a very jittery international market backdrop.  Should be another volatile week, to say the least.

As the old trader saying goes, from failed moves come fast moves.  If 1575 fails, buckle up.