Important: I use New York close charts so that each 24-hour period closes at 5 pm EST.
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Last week I pointed out a rising wedge pattern on the S&P 500. At the time, the market was still trading above support, but the rising and narrowing price action since July was a bit worrying for buyers.
Fast forward to today, and you can see that it was right to question the stability of the recent bullish momentum. The market has broken wedge support, exposing the January swing high at 2870.
One could see this breakdown coming from a mile away. The way the S&P had started to lean on wedge support above 2900 and its inability to break above 2940 were early warning signs, not to mention Wednesday’s bearish pin bar.
It was so obvious that I began commenting about an imminent breakdown in the member’s area as soon as Wednesday’s session closed at 2920.
However, as I mentioned last week, this rising wedge does not suggest that the multi-year uptrend or even multi-month rally is over. For all we know, yesterday’s breakdown may produce a retracement as shallow as 2870 and nothing more.
On the other hand, it could generate a move to 2790, 2740, or even 2680. As always, time will tell.
The bottom line is that the S&P was in need of a pullback and still is even after yesterday’s breakdown. So even though the market is still bullish in the longer term, it would be prudent to expect additional losses while below former wedge support near 2920/40.
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