S&P 500: Springs to Life, but Bearish Outlook Still Remains
- Stocks pop, but S&P 500 and Dow remain carving out bearish tops
- Clean daily close below SPX 2035 required for H&S to trigger
- Trading between the lines until confirmation
Yesterday, the market experienced a sizable pop, pushing the major indices up by about 1% or greater for the day. The S&P 500 and Dow both bounced from near what we have been viewing as neck-line support of head-and-shoulder topping formations. The Dow actually bounced from just beneath it, which is one of the reasons we said yesterday we want to see the broader S&P confirm the head-and-shoulders top before getting too excited.
The bounce in the SPX is taking it back near the top-side trend-line off the April 20 peak. This will act as resistance and a move above should carry no further than the May 10 high at 2085 if the identified topping formation is to maintain its integrity. Support on a down-move comes in around 2035/39. A clean daily close below 2035 puts us in 'full-on bear' mode. Until then, we will continue to play between the lines.
If the market continues to move sideways, then the alternate descending wedge scenario will come into focus. The series of lower highs with a relatively flat bottom of which a descending triangle consists of, is bearish in nature and will likely lead to the same outcome as the H&S.
Keep in mind, seasonality is not on the market’s side, and neither is stiff resistance just above between 2083 and 2116. The Nasdaq lagging behind is also not a sign of good market health.
The Nasdaq 100 is attempting to carry above a developing top-side slope line at this time, but as long as it is unable to close above sloping resistance or the May 11 peak at 4408, then the near-term chart remains postured lower. A break below 4308 is likely to usher in a move towards, and likely below, the May 6 low at 4277.
For now, trading between the lines with short-term holds in mind is the game-plan on this end, but should we see one of the two before mentioned developments confirm itself, we will be ready for a broad market move.
---Written by Paul Robinson, Market Analyst