Did the S&P 500 just break out? This is a really good question, isn't it? Since March 1st, the S&P 500 has been drifting lower, by nearly 3%, although today's gains are helping to erase some of those losses. (See also: These 10 Stocks Are Fueling the S&P's Rise.)

^SPX Chart

^SPX data by YCharts

Since March 1st, I have been watching the S&P 500 and tracking its movements using an hourly intraday chart. In the following graph, you can see two white lines: One represents the lower bound, and the other represents the top bound of the range, which accounts for support and resistance band. We'll get to the green line later. The red bar chart is the Bollinger Band Width, which I use to measure the volatility of the index.

(Interactive Brokers TWS)

We see that today, the S&P 500 crossed through the upper resistance level on the chart. How can we be sure that this is a breakout and not a head fake, like early in the chart, back on April 5th? Well, at this point we can't, but I can tell you what I would like to see happen to convince me that the S&P is breaking out.

The thing we need to see most moving into the close of trading is a market that remains strong and strengthens into the close. We do not want to see a market that starts to retreat or gives up gains going into the end of the day. A market that closes strong is important because it can help to create follow-through the next morning. A follow-through tomorrow is critical as well.

Additionally, the Bollinger Band Width has been shrinking over the past few weeks, indicating a market that is trading in a tight range and has become less volatile. If we get a market that has broken out to the upside, we should begin to see those bands widen again.

(Interactive Brokers TWS)

Above is a daily chart of the S&P 500, one that I try not to share too often. For one, it is a mess. And two, it has a lot of important reference points for me. The green trend line you see drawn on the hourly chart goes back to the market bottom in February 2016 and out to Brexit in June. The S&P 500 has virtually been tracing along this support line for over a year. We need to see the S&P 500 retake that line and continue up.

That's what to look for regarding a breakout.

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