Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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There’s no questioning that the S&P 500 uptrend is intact. Anyone who has glanced at the monthly, weekly or daily time frame knows that to be true.
However, for those who have been around the market for the majority of 2018, you know the S&P isn’t without its temper tantrums. And they aren’t to be trifled with either. Just look at the price action between early February and late March.
I’m not saying that’s about to happen again, but I do think buyers should be careful at these lofty elevations. Not because the market is overbought (I dislike the use of that term when analyzing any market), but because of what’s happened since July.
As you know from one of my lessons, a rising wedge like the one below is an exhaustion pattern. It suggests buyers are tiring. It also hints at a possible reversal should wedge support give way on a daily closing basis.
I do want to caution readers though. Attempting to short the S&P 500 is not a decision you should take lightly. Since 2009 many have tried, few have succeeded.
Instead, you should take this as a mere caution if you’re contemplating buying the index. That isn’t to say the market won’t move higher. I know better than to try to pick a top after nearly a decade of gains.
However, I do think that a pullback is in order given the last few months of movement. It could be a shallow retracement to the January high at 2870 or something more substantial to 2790 or 2740.
If you are going to use the pattern below to attempt a short, keep the 2870 support area front and center. It’s likely to attract an influx of buying pressure if tested over the coming sessions.
For now, the S&P 500 index is pointed higher, but don’t be surprised if we start to see some weakness if wedge support gives way.
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