SPX H&S Downward Breakout

Updated

Primary Chart: SPX Head and Shoulders Pattern with Neckline Resistance and Fibonacci Supports

SPX formed a Head and Shoulders pattern (H&S) on the daily and intraday charts over the past month. A H&S pattern is actually invalid until it's confirmed with a breakout below the neckline, drawn in dark blue on the primary chart above. In addition, because many traders and market participants see H&S patterns, they have a lower success rate. In any case, a retest of the neckline as a significant chance of occurring in the coming weeks even if the price ultimately continues its decline lower. So watch out for a retest of the breakout point, a common occurrence in choppy unpredictable markets like this year's market.

Key levels for this week appear to be SPX 4023, SPX 3981, which are immediate supports that may be reached soon. Whether these supports break or hold (or break and then are reclaimed) will be important especially in the near term.

A key level of resistance near term lies just over head at 4062.31. This is a Fibonacci level and it is the .382 retracement of the entire rally off June 2022 lows. Note that this level was tagged Monday, August 29, 2022, and held firm as resistance. In fact, Monday's high was just above this Fibonacci line by about 68 cents.

The potential for this decline to be a measured move also exists. A measured move occurs when a price move is corrective in nature and retraces only a portion of the prior move. Whether this move is corrective against the rally off June lows, or whether it is the start of a new impulsive decline back to lows remains unclear—it's the million-dollar question that is debated by everyone on financial media. In any case, examining the corrective measured-move target is a conservative approach to finding a level where SPX may reach to the downside, though nothing is guaranteed in markets.

The measured move area is just below 4000. If the first wave of decline has equality with the second wave of decline, the end of the second leg could reach 3997.73.
Supplementary Chart A: Measured Move Target Zone between 3941 SPX and 3997 SPX

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Trade closed: target reached

This article noted that SPX 3981 in this article was the 50% retracement of the rally from mid-June to mid-August 2022. This article, published on August 29, wrote: "Key levels for this week appear to be SPX 4023, SPX 3981, which are immediate supports that may be reached soon." Today, SPX 3981 was reached.

The article also noted that the measured move area was SPX 3941 to 3997. This area was reached today as well with a low of SPX 3954. With ES futures down tonight another half a percent, it appears the measured move 1.272 level of 3941 will be reached as well.

Note

Check out the reversal right at the uptrend line since June 2022 lows. Not a great spot to be loading up on bearish positions unless you think the reversal candle (a hammer pattern) for today is meaningless and that being extended to the downside won't matter this month.

I suspect the line breaks eventually. Just not right away perhaps.

Note

Also price found support right at that .618 R (around 3900 SPX) of the entire rally from June lows to August peaks.

SquishTrade

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