The S&P Broke Its Trendline. Now What?
The S&P 500 has enjoyed a healthy bounce in recent sessions, but it may not be smooth sailing from here.
The first important pattern on this daily chart is the breakdown from the rising wedge. At earlier moments, prices bounced sharply at the lower trendline. This month, however, they sat heavily at support before knifing through. That suggests the trendline is officially broken.
Next, the price zone between about 4440 and 4470 could be new resistance. It's where dip buyers were active last week, and where they could now become sellers.
The moving averages are giving some cautionary signals because the 8-day exponential (EMA) has stayed under the 21-day EMA for the first time since March.
MACD was additionally showing bearish divergence before the recent breakdown.
The calendar is also tricky for the bulls with political uncertainty probable through the end of the month. Meanwhile there’s little on the corporate side until earnings season in mid-October.
Despite these issues, we don’t want to sound too bearish on SPX. Sentiment has grown overly negative lately, and the fundamentals (economics and earnings) haven’t come apart yet. Furthermore, internals like breadth and sector performance show little clear weakness.
If anything, the market may simply be in the midst of another rotation from large secular growth stocks (Nasdaq) and income plays (REITs/utilities) to cyclical value stocks (energy/financials). Given the dominance of the major Nasdaq names in SPX, the big index could struggle for a while.
However we could be setting up for another breakout in the
Russell 2000. We’ll keep an eye on that in coming weeks.
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The first important pattern on this daily chart is the breakdown from the rising wedge. At earlier moments, prices bounced sharply at the lower trendline. This month, however, they sat heavily at support before knifing through. That suggests the trendline is officially broken.
Next, the price zone between about 4440 and 4470 could be new resistance. It's where dip buyers were active last week, and where they could now become sellers.
The moving averages are giving some cautionary signals because the 8-day exponential (EMA) has stayed under the 21-day EMA for the first time since March.
MACD was additionally showing bearish divergence before the recent breakdown.
The calendar is also tricky for the bulls with political uncertainty probable through the end of the month. Meanwhile there’s little on the corporate side until earnings season in mid-October.
Despite these issues, we don’t want to sound too bearish on SPX. Sentiment has grown overly negative lately, and the fundamentals (economics and earnings) haven’t come apart yet. Furthermore, internals like breadth and sector performance show little clear weakness.
If anything, the market may simply be in the midst of another rotation from large secular growth stocks (Nasdaq) and income plays (REITs/utilities) to cyclical value stocks (energy/financials). Given the dominance of the major Nasdaq names in SPX, the big index could struggle for a while.
However we could be setting up for another breakout in the
Russell 2000. We’ll keep an eye on that in coming weeks.TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
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