Why we view the S+P as a longer term top.
The sell-off on the S+P 500 is finding some support from both cloud and Fibonacci support just above 4200, which prompted a decent rebound yesterday, so was this a simple correction and we should buy the dip or was this a start of a more significant sell off?
From a technical perspective, we are increasingly of the opinion that the market has topped longer term, and this is the start of a more significant sell-off. Why do we think that?
1. There is a clear top pattern between approx. 4500-4800 ish, which to our practiced eye looks like a head and shoulders reversal pattern (yes, its messy but it is a top). These are well documented reversal patterns that come at the end of an extensive bull move.
2. We no longer meet the definition of an up move according to Dow Theory (which calls for higher reaction highs and higher reaction lows).
3. There was a large divergence on both the weekly and monthly RSI on the move to a new high. This reflects a significant loss of upside momentum longer term. This occurs when the market makes a new high and the indicator does not.
4. We have sell signals on the daily and weekly DMI signal (directional movement index). These occur when the red line breaks above the blue line on the indicator.
5. We have broken below the 200-day ma for the first time since June 2020.
If we are correct in our assumption that the market has topped, we may see a ‘return to point of break out’, where the market rallies back to the ‘neckline’ of the head and shoulders top. These reactions are frequently seen and in this particular case the rally should fail somewhere around the 4600 zone.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
From a technical perspective, we are increasingly of the opinion that the market has topped longer term, and this is the start of a more significant sell-off. Why do we think that?
1. There is a clear top pattern between approx. 4500-4800 ish, which to our practiced eye looks like a head and shoulders reversal pattern (yes, its messy but it is a top). These are well documented reversal patterns that come at the end of an extensive bull move.
2. We no longer meet the definition of an up move according to Dow Theory (which calls for higher reaction highs and higher reaction lows).
3. There was a large divergence on both the weekly and monthly RSI on the move to a new high. This reflects a significant loss of upside momentum longer term. This occurs when the market makes a new high and the indicator does not.
4. We have sell signals on the daily and weekly DMI signal (directional movement index). These occur when the red line breaks above the blue line on the indicator.
5. We have broken below the 200-day ma for the first time since June 2020.
If we are correct in our assumption that the market has topped, we may see a ‘return to point of break out’, where the market rallies back to the ‘neckline’ of the head and shoulders top. These reactions are frequently seen and in this particular case the rally should fail somewhere around the 4600 zone.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
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