- S&P 500 rising wedge maturing, nearing its breaking point
- Dow Jones index etching out similar formation
- If these are to break, it should happen in next couple of days
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Last week, we discussed the potential for a rising wedge in the S&P 500 to form, and if triggered the market could be in for a decline and thus a rise in volatility as a result. Since that post, the pattern has matured towards its ‘make-or-break’ point, or apex. This price sequence has become increasingly visible in the Dow, too.
The tendency, after extended advances, is for rising wedges to lead to a decline, but in some cases a move higher out of the pattern can occur. Should the latter happen, it is likely to prove terminal as often is the case when we see a bullish breakout within the context of a market which is extended. Either way, whether the S&P simply cooperates and undercuts the bottom-side trend-line or shoots higher first before taking out the belly of the pattern, a pullback looks to be just on the horizon.
S&P 500: Hourly
The June slope has been a big line of support, and may be a point the market initially leans on, but if we are to see the rising wedge exert its forces then it should prove to be more of a speed-bump than an end-point for a decline. The targeted area of support we’ll look to should this thing start rolling downhill arrives around the base of the pattern in the vicinity of 2544/40.
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The Dow Jones price sequence isn’t quite as pretty as it is in the bigger S&P, but nevertheless it’s a valid rising wedge and ultimately will follow suit. The initial target is for a move to 23250.
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---Written by Paul Robinson, Market Analyst
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