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S&P 500 & Dow Jones Technical Outlook: Big Top & Drop in the Cards

S&P 500 & Dow Jones Technical Outlook: Big Top & Drop in the Cards

2018-04-06 10:08:00
Paul Robinson, Strategist
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S&P 500/Dow Jones Highlights:

  • S&P 500 lower-high could soon be in the works
  • Dow Jones building a clean descending wedge
  • Levels and lines on the chart to watch

See what factors are expected to drive the S&P 500 this quarter, along with the Top Trading Opportunities for 2018 on the Trading Guides page.

S&P 500 lower-high could soon be in the works

The bounce in progress, so far, is just that – a bounce. The confluence of support between the 200-day MA (an important and popular threshold in stocks) and the February 2016 trend-line have thus far kept the S&P 500 from falling apart. It looked as though a break was going to happen early in the week, but instead the market was able to hold onto support for now.

A rally isn’t expected to carry the market much further, perhaps as high as the trend-line off the record high, which is a decent-sized move from here, however; looking at the chart of the Dow that may be overly optimistic. More on that in a moment.

If the S&P soon carves out a lower-high and turns down, breaking the recent low, another large leg lower looks to be in store. On an initial thrust, this could take the market down to the lower parallel connected to the trend-line off the record high, somewhere in the vicinity of 2400. The 2009 to current bull-market trend-line, down near 2200, is seen as coming into play at some point.

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S&P 500 Daily Chart (Lower-high anticipated)

S&P 500 daily chart with confluence of important supprt, lower high anticipated, then decline

Dow Jones building a clean descending wedge

The Dow Jones Industrial Average (DJIA) is in the process of carving out a descending wedge, which is why the S&P may not make it much further before posting another lower-high. The pattern is becoming pretty clear with this second bounce nearing completion around the trend-line off the record high coupled with the flat bottom which arrives in the vicinity of the 200-day MA.

A turn down and break of the underside of the pattern will have it in full-swing. Its implications are for a drop of nearly 3000 points from the validation point, or a move to around the 20k mark. This target is determined by the height of the pattern subtracted from the bottom of the wedge. It won’t necessarily happen in one big fell swoop like the one off the record high, but it is likely to happen quite swiftly.

DJIA Daily Chart (Descending wedge forming)

DJIA daily chart with descending wedge top forming

If you’d like to listen in on live analysis pertaining to global equity indices (and commodities), join me every Tuesday at 10 GMT time for technical insights.

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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