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:
Notice the upside break of this long-term ascending channel. That’s the area highlighted in blue.
And here’s how things look now:
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.
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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