Overview

SP 500 FUTURES was unable to break above the strong resistance level at 4176 and fell below the important support zone, 4128 / 4110, decidedly yesterday. The selling pressure continued today. It reached as low as 4056 before it bounced off the low. It did break below the uptrend trendline briefly, which connected the prior lows, 3246 and 3756. Nonetheless, the uptrend is still intact. To determine the trend, support and resistance, I use the Renko chart technical analysis and patterns for today’s analysis.

• The Renko chart uses a traditional 6-point brick size.
• On the upside, 4110 / 4128 is the current resistance zone.
• If SP 500 breaks above 4128 and holds, 4128 becomes the support level again. The next resistance is 4164 / 4176.
• On the downside, 4050 is the immediate support zone.
• Psychological barriers: 4100 / 4000

What Happened

SP 500 Futures began to slide on Monday. The selling pressure continued to suppress the price from moving higher. The 4128 support zone was broken easily; therefore, it needed to seek support near the 4050 area. Fortunately, 4056 provided the much needed support and it was able to bounce off the low and move higher.

What’s Next

• On the upside, 4128 is the immediate resistance zone for SP 500 FUTURES. The next resistance level will be 4176.
• On the downside, 4050 is the first support area.
• If the late momentum which pushed the price higher late in the day could continue, SP 500 Futures might have another go to challenge 4128 and then 4176.

Below is the daily Renko chart

How to Use Renko Chart Technical Analysis in Trading – Use Support, Resistance, and Trendline

The most important benefit of a Renko chart is it removes the noisier part, i.e. the time element, from the candlestick / bar chart. A Renko chart makes it easy to see where the market is moving because it smooths the price action. The time element in trading can often distort the price movements and therefore, distract the traders. Being able to focus on the price movements, identify the trend, support and resistance, sound trading decisions can be made more easily.

In today’s Renko chart, SP 500 is trading below 2 important levels, 4176 and 4128. 4176 was proved to be a very strong resistance. Once 4128 was an important support level, it is now a resistance as well. The good news for the bulls is the long term uptrend is intact. This is the trendline that connects the prior two lows, 3246 and 3756. 4050 is now critically important. If 4050 does not hold, 4010 / 4000 will be retested.

The first wave was from 4224 to 4062, or 162 points, based on the close prices of the daily Renko chart. 4062 would be the point A. It began to ascend and reached 4164, which was the point B. In the A-B-C pattern, assuming the C wave is equal to the A wave, we can project the low at 4002. That is 4164 – 162 = 4002. Remember this is based on the close prices.

Which Pattern?

The current correction pattern began at the high 4230. The question at the moment is whether this is an A-B-C pattern correction. If it is, it won’t be a downtrend because an A-B-C pattern is not a trend. Therefore, SP 500 Futures will move higher.

On the other hand, if it is a beginning of a major downtrend pattern, i.e. a 5-wave downtrend pattern, the current wave up could be a dead cat bounce. It means we are currently in the 2nd wave; therefore, lower prices are expected.

Whether it is an A-B-C pattern, or a downtrend pattern, SP 500 is currently bouncing back from the recent low, and is moving lower soon once a lower high is established. The lower high now is 4176.

As a result, I am looking to initiate a buy-write strategy – purchase SDS ETF, ProShares UltraShort S&P 500, and write covered calls.

UPDATE: 5/19/2021 – I did not initiate a SDS buy-write covered call position.