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SUPPORT & RESISTANCE


OEX Battles 580

05/31/06 08:15:10 AM
by Arthur Hill

The S&P 100 came down hard in May, but managed to find support at a prior resistance zone. Meanwhile, the battle for 580 is still raging.

Security:   OEX
Position:   Hold

Broken resistance (support) turns into support (resistance). This key tenet of technical analysis is bearing fruit on the Standard & Poor's 100 chart (Figure 1). The stock surged in October–November 2005 and then began a volatile consolidation around 580. This consolidation lasted three to four months and the index crossed 580 over a dozen times (gray box). Talk about a battle zone!

FIGURE 1: S&P 100. Broken resistance turns into support, as this chart shows.
Graphic provided by: MetaStock.
Graphic provided by: MS QuoteCenter.
 
The bulls appeared to win with the breakout in March, then moved to new highs in May. In addition, the 580 level turned into support in mid-April as the index formed a reaction low at 580.63 on April 17. This further affirmed support, and the move to new highs was bullish.

There is only one small problem: The May move to new highs failed, and currently, the index is once again wallowing around support at 580. OEX broke the March and April lows. I find this bearish but cannot ignore the support zone around 580. The index traded around this level from late November to early March, and this area should offer support.

What now? Given the support zone and key support at 568, I would expect some consolidation in this area—again. In fact, a consolidation between 568 and 590 would form the right side of a head & shoulders pattern. This would further reinforce support at 568. Right now, support at 568 is holding and I will key off this level for a trend change. A move below this level would forge new lows for 2006 and turn the daily chart/trend bearish.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

Title: Editor
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