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S&P500 Index 1H Chart 8/27/2012 7:02AM EDT

The S&P 500 shows that risk-on trading is still resilient. It has held above a key pivot at 1386.90. After an ABC correction, the index rallied sharply back above the 200-Hour SMA, and above a projected resistance that was going to shape the market in a declining channel if it held.

As you can see in the 1H chart, the next resistance pivots are at 1417.50 and 1424.25. Before we decide that the market is in bullish continuation, this should be assessed as a range-bound market between the 1424.25 high and the 1395 low.

Beware that the scenario of the completed ABC corrective structure could be just the start of a larger (A) wave. Then, the rally right now is just a connector to another ABC correction. In this scenario, the 1417.50 pivot, which is also near the 78.6% retracement seen in the 4H chart, could become a pivot for another corrective wave. The ability of the market to fall below 1409 should be a clue of further sideways to slightly bearish consolidation.

In the case of bullish extension, the 4H chart shows the fibonacci extension targets. The 138.2%-161.8% extension zone between 1435.37 and 1442.33 represents a general target area for a break above 1424.25. The 4H RSI reading, after failing to sustain a break below 40, should reflect persistence of bullish momentum if it pushes back above 60, and of course even more so above 70.

Strength in S&P 500 is a sign of risk-on, which in turn should pressure the USD and JPY and boost commodity currencies like AUD and CAD.

S&P500 Index 4H Chart 8/27/2012 7:05AM EDT

Fan Yang CMT is a forex trader, analyst, educator and Chief Technical Strategist for FXTimes – provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.