S&P 500/Dow Jones Technical Highlights:
- S&P 500 rising wedge scenario becoming a real possibility
- Dow Jones trading at resistance; can it break on through?
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S&P 500 rising wedge scenario becoming a real possibility
Last week, I discussed a scenario where the S&P 500 works its way into a rising wedge, and since then we’ve seen that become a real possibility with the latest round of strength. Just a little more backing-and-filling and we’ll have a textbook pattern.
What does this mean for the market? There are three ways these typically play out. The first is that the market breaks the top-side and runs higher, in this case testing or breaking out to a new record high. The second is that we see a breakout to the top-side but then price quickly sinks lower and undercuts the bottoms-side trend-line of the pattern. With the old high right around the corner sellers very well could show up in earnest. A false breakout would likely lead to a swift decline as the long-side gets caught leaning the wrong way. The third scenario is for the market to ‘simply’ break the underside trend-line of the pattern and the S&P undergo a meaningful round of weakness.
Often-times these patterns are thought of as topping patterns after extended advances, so I’m inclined to look for one of the latter two scenarios to play out. But we can’t rule out a bullish outcome, so it is important to run with the break the market presents and trade accordingly.
Traders are generally short the S&P 500, find out on the IG Client Sentiment page what this could be for prices moving forward.
S&P 500 Daily Chart (Rising wedge nearly formed)
Dow Jones trading at resistance; can it break on through?
The Dow is trading at resistance near 26300 dating back to November, but the rising wedge in the S&P 500 will be the likely determinant for how much longer that is the case. The timing may be fitting with the S&P nearing the top of the pattern and resistance in the Dow right close at hand. We shall see here very soon, as the market is indicating a positive open today and thus another thorough test of resistance.
Dow Jones Daily Chart (trading at resistance)
To learn more about U.S. indices, check out “The Difference between Dow, Nasdaq, and S&P 500: Major Facts & Opportunities.” You can join me every Wednesday at 10 GMT for live analysis on equity indices and commodities, and for the remaining roster of live events, check out the webinar calendar.
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—Written by Paul Robinson, Market Analyst
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