A Deeper Pullback in August?
The S&P 500 has risen for six straight months. Is it lining up for a pullback?
This chart shows a rising wedge that’s taken shape this month. Unlike the earlier ascending channel, this pattern is potentially bearish because the new highs aren’t keeping up with the higher lows. That suggests buyers are less willing to push the index into new territory.
Yesterday’s candle is another potential issue. SPX pushed about 7 points above its Monday high, but then closed slightly below it. (A false breakout?) It followed a hanging-man on Tuesday and an inside doji candle on Wednesday. That kind of behavior is potentially consistent with a top.
Third, MACD continues to trend lower as prices make new highs.
Fourth, a lot of good news may be priced in. It’s the best earnings season since 2009, but the outlook of companies like Amazon.com raise questions about growth peaking. Economic data has also slowed.
There isn’t a lot of confirmation for the bears yet. However given the slowing price action and fewer catalysts next month, traders may want to be on guard for a deeper pullback. If volatility starts to spike, the patterns above suggest it may intensify. Unlike the pattern since November, quickly buying the next pullback may not be the best idea.
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This chart shows a rising wedge that’s taken shape this month. Unlike the earlier ascending channel, this pattern is potentially bearish because the new highs aren’t keeping up with the higher lows. That suggests buyers are less willing to push the index into new territory.
Yesterday’s candle is another potential issue. SPX pushed about 7 points above its Monday high, but then closed slightly below it. (A false breakout?) It followed a hanging-man on Tuesday and an inside doji candle on Wednesday. That kind of behavior is potentially consistent with a top.
Third, MACD continues to trend lower as prices make new highs.
Fourth, a lot of good news may be priced in. It’s the best earnings season since 2009, but the outlook of companies like Amazon.com raise questions about growth peaking. Economic data has also slowed.
There isn’t a lot of confirmation for the bears yet. However given the slowing price action and fewer catalysts next month, traders may want to be on guard for a deeper pullback. If volatility starts to spike, the patterns above suggest it may intensify. Unlike the pattern since November, quickly buying the next pullback may not be the best idea.
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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