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What’s inside:

  • 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

Check out the DailyFX Quarterly Forecasts to find out where our analysts see global stock markets ending the year.

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

S&P 500, Dow Jones Flashing Signs of a ‘Mini-top’

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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S&P 500, Dow Jones Flashing Signs of a ‘Mini-top’

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.

Dow: Hourly

S&P 500, Dow Jones Flashing Signs of a ‘Mini-top’

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---Written by Paul Robinson, Market Analyst

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