The S&P 500 Moves One Step Closer to the Edge
- The S&P 500 is one step closer to triggering the neckline of the H&S pattern
- On Friday, the Dow did so, marginally
- Continuing to watch the Nasdaq as the down-side leader
The S&P 500 (FXCM: SPX500) is close to triggering the neckline of the ‘head-and-shoulders’ pattern we have been discussing this past week, while the Dow (FXCM: US30) actually did so marginally on Friday. The trend-line in the S&P which acted as minor support off the Feb 11 low gave-way on Friday, now exposing the neck-line and May 6 swing low around the 2037/35 area. A break below 2035 on a daily closing bar basis opens the door up for a move towards 2000 and lower.
Once (if) the S&P breaks down, then the path of least resistance should become firmly lower across the board. Watch how things play out in the Nasdaq as well. While it doesn’t have the same technical configuration as the S&P and Dow, it has been the leader to the down-side since peaking in April. It should continue to do so, but isn’t necessary in order for the market to start guiding lower; a rotation effect could come into play if sellers have exhausted themselves in tech-heavy stocks.
We are still taking it one day at a time until a confirmation break occurs. If the S&P doesn’t break the neckline, a bounce back towards the upper trend-line off the 4/20 high could ensue. If this were to happen the H&S would likely become a descending triangle, which could ultimately hold the same bearish fate, but via an alternate path and timeline.
The height of the H&S dictates a measured move towards about 1960 in the S&P and roughly 16900 for the Dow. The Nasdaq 100 would likely sink towards about 4,100, which would bring further clarity to a very large macro-top under development since last summer - This could lead to a much more insidious decline in H2 2016/H1 2017. More on that another time, for now we will focus on what is directly in front of us.
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---Written by Paul Robinson, Market Analyst