S&P 500 Rejects T-Line Break, Brings Bullish Pattern into View
- S&P 500 rejects November trend-line, holds long-term top-side t-line
- Continuation-style inverse head-and-shoulders formation coming into view
- 2320 targeted opon confirmation, invalidation comes below 2248
Check out our Trading Guides for Q1 forecasts and trading ideas.
The S&P 500 continues to chop sideways, building what appears, as we’ve been discussing recently, a base for an eventual breakout to new highs. Yesterday, the market started out on a negative note, dropping through the trend-line rising up off the November low, but by day’s end the decline was met with buying and closed back above. The rejection and recovery is a good sign for the market. The day low also happened to come around a top-side trend-line extending over peaks in 2007 and 2015, but hasn’t been discussed much due to how long-term it is. However, with the market now abiding by it on two occasions – once in the middle of December and then yesterday – it’s in play.
The other day, we briefly discussed the possibility of the market forming a double-top (12/13, 1/6 highs), but only if aggressive selling were able to clear a path lower. So far not the case.
The month-long consolidation now resembles a continuation-style inverse head-and-shoulders formation; marked by two declines in December and yesterday’s decline and reverse. It’s not the cleanest looking pattern, but nevertheless one on the table. A close above the Jan 6 high would trigger the neck-line and kick off the pattern into new record territory. Based on the depth of the inverse H&S, a measured move target arrives around 2320. These continuation-style patterns many times lead to a turning point which results in a material retracement, so we'll be on the look-out for signs of a reversal should we start extending higher.
What would invalidate the pattern and bullish view? A strong move below yesterday’s low of 2254 and mid-December low at 2248. At that point alternative paths would need to be considered.
S&P 500: Daily
Created with Tradingview
Join Paul each Wednesday and Friday at 10 GMT for live analysis, and on Thursday’s for the “Becoming a Better Trader” series. For details and a schedule of all live events, see the DailyFX Webinar Calendar.
---Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email by signing up here.
You can follow Paul on Twitter at @PaulRobinonFX.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.