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S&P 500 Erases 2018 Gains, but Sellers Aren’t Done

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The S&P 500 has broken down from yet another key technical pattern.

It’s been a while since I discussed the index. The last time was shortly after sellers cleared rising wedge support on October 5th.

At the time, the S&P was trading at 2905. And we all know what happened next.

It made for an excellent trade. And there may be a second opportunity brewing.

A few days ago on the 17th, I mentioned the S&P 500 breakdown as part of a USDJPY commentary.

But I wanted to expand on it given its significance.

The first chart I want to discuss comes from the monthly time frame. It’s useful in a situation like this where the market has been trending higher for nearly a decade.

Here’s the chart I presented to Daily Price Action members back in October:

S&P 500 monthly channel

Notice the upside break of this long-term ascending channel. That’s the area highlighted in blue.

And here’s how things look now:

S&P 500 monthly channel false break

Breakouts like this do not last. That’s particularly true when it occurs following a multi-year move.

Sure enough, this month is on track to close back inside of the channel.

That’s good enough to trigger a reversal, at least in the short-term.

However, the technical carnage doesn’t end there.

A view of the daily time frame shows an upward sloping flag that started developing at the beginning of 2018.

A channel that develops with the trend following an extended move is a reversal signal.

It’s similar to a rising wedge in that it indicates exhaustion from buyers.

Notice how the December 4th session closed below channel support. That was a significant development for the S&P 500.

I also mentioned this breakdown in the member’s area.

S&P 500 break of key support area

Now, recall the monthly channel in the first chart above.

That December 4th break of channel support exposes the longer-term level that extends from the 2009 low.

At the moment, that could be as low as 2330. Of course, it will depend on how long it takes the market to pull back from current levels.

It’s no surprise that the S&P is catching a bid today. Yesterday’s session closed near the (former) year-to-date low of 2530.

We may continue to see some strength in the near-term, but it’s my opinion that a broader pullback to the 2330/50 support area is underway.

Key resistance comes in near 2620 with support at today’s low of 2530.

The area just above 2400 is another one I’d keep a close eye on if tested as support over the coming weeks.

Not only did 2400 serve as a pivot between February and July of 2017, but it’s also the 23.6% Fibonacci of the 2009 to 2018 range.

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S&P 500 multi-year trend line

Leave a Comment:

15 comments
Emuobo says

Thanks I have been following this awesome well. Please can you link me with the lesson on bearish flag and pyramid..

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Nosakhare says

Thank you sir, but what is S&P.

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    Sushant says

    An index fund that follows top 500 companies of US

    Reply
    Bothie says

    It is an index classification of US stocks of 500 carefully chosen and weighted Standard&Poor listed companies

    Reply
Mimi says

Great and thanks for the follow up as your previous analysis on this pair was spot on as usual!

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Art Santos says

Hi Justin: Could you suggest a broker and a platform that is easy to navigate? I am in the US and want to trade both forex and the e-mini S&P in one place. Thanks,
Art
(I have looked into Interactive Brokers and TDAmeritrade and didn’t find them intuitive…)

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    Bothie says

    Try Blackberry that Justin promotes or Exness, HotForex and USGF….. All are just www.(fxbroker).com…

    For closer chats +263 718 165 622

    Reply
Daks says

Will keep an eye on that sell

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Anesu says

Thanks, Justin. Really appreciate the analyses.

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Bothie says

You were so spot on on this one Justin. I respect your skills… But what of GBPUSD seeing the FED Decision which hiked interest rate to 2.5% and the pending BREXIT issue!

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Sulaiman says

Good analysis sir but on which meta trader can I trade sp500 the process

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    Kevin Wagner says

    Should be on any MT platforms. Click view. Click market watch. Right click any pair and click on “show all”

    Reply
DANIEL says

Justin, you are great! I wouldn’t say I am a new trader. I’ve wet my feet, about 1yr 6month in the game. Lost my account, woke up from illusions and became a market hermit apprentice. I come to your site to verify my analysis, and our analysis almost always tallies. It gladdens me when i find my ideas confirmed by you, my pseudo-mentor. But in truth, using wyckoff analysis, SPX already died a long time again. This is the last stroke of dead. I will join your community, just because you are wonderful. Thanks

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Celestine says

your analysis and overall trading strategy are simply unique and fantastic.

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Chris says

Justin, I noticed that Forex experts such as yourself reference the S&P quite regularly. As a matter of correlation, are you simply looking at the S&P, like many do, as part of the overall risk of the market whereby when sentiment is risk-on, the equities will be strong while the safe havens (USD, CHF, JPY) will be the opposite, or is there a deeper correlation specific to the S&P?

Thank you

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