During volatile times, it’s often helpful to step back to get a broader, simpler perspective of price.
The perspective of price includes where it’s traveled, what levels are important, and where it may be headed in the immediate future.
“Color Structure” price-only charts can provide valuable roadmaps for traders.
Let’s update our current Color Price Structure chart of the S&P 500 (NYSEARCA:SPY) to pinpoint key levels now:
What we’re seeing is the @ES Futures (S&P 500 Index) on a Daily Chart from early 2014 to present.
The small ranges – white and purple – are most important at the moment.
These represent periods of balance or equilibrium between buyers and sellers (bulls and bears) and are reference points for today.
As price trended higher, it did so in bursts (impulses and rallies) and consolidations (ranges) – stops and starts.
The first noted range developed early 2014 between 1,800 and 1,850 with 1,825 as the “Midpoint” or value area.
After a breakout surged price higher toward 1,950, a wider “box” or Value Area developed between 1,850 (the prior range high) and 1,980 with 1,930 as the Midpoint Reference.
What happened next should draw our attention because it could hold clues for the current environment.
Note the violent breakdown in October which was met with an intervention spike-reversal that propelled price not only back toward the midpoint, but eventually above it to form a new higher value area.
We’re on guard and planning whether this August breakdown could result in another spike-reversal back toward the current levels.
Moving on, price developed another 100 point range in early 2015 ahead of a small breakout in February that led to the “Great Trading Range of 2015″ between 2,040 and 2,130.
This range lasted the longest of the four drawn consolidations and perhaps not surprisingly, the drop or breakout was (so far) the strongest or most violent.
On the Spike-Intervention Rally (like October), price has already traded through the mid-2014 Range and now potentially trades up toward the 2,000 level or Midpoint (purple line) from early 2015.
However you’re trading, be sure to reference these prior “Value Areas” or Range Reference “Boxes” and view them as magnets toward which price (the index) is being drawn.
If price continues to gravitate toward – and through – these levels, then we have a simple roadmap to the future.