Today is Sat, July 22, 2017 22:49:53 GMT
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Contributors Chart of the Week: Watch These Key Levels of the S&P 500

If you’re a currency trader, it’s important to keep an eye on the S&P 500 index. Many currencies have been moving in opposite direction of the equity index. As you can see in the chart below, the S&P 500 has been moving sideways in what’s known as consolidation period.

It has now formed a symmetrical triangle. A breakout of this triangle will indicate in wich direction the market is most likely to move next. But the triangle is not the most important thing to watch.

I would focus on 1,220. That’s the key number. If stocks are to move higher in the so called end of year rally, the index must not drop below that number. If the S&P 500 breaks to the downside, it could quickly drop another 100 points to retest the previous lows.

If the S&P 500 breaks to the downside, the dollar will rally across the board. It will be a good time to short emerging market currencies against the dollar.

If the S&P 500 breaks to the upside, the opposite will happen. Emerging market currencies and cyclical currencies, such as the Aussie, will rally. If that happens, the Mexican peso should outperform.

In sum, the S&P 500 would have to break above 1,290 for stocks to finish the year with a strong rally. If it breaks below 1,220, stocks will most likely retest the previous lows and the dollar will rally.

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