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S&P 500: Time for a short inception? ($SPY $SPX)

The S&P 500 Index has just broken above its all-time high hit just before January’s correction. After six months of regaining lost ground, is it about to continue its march higher unabated? Your guess is as good as anybody else’s. However, it certainly feels like the water is starting to boil under that lid, with growing mania in the US surrounding Trump – regarding both his personal life and US protectionist policies. On the surface, corporate tax cuts did their job, earnings’ season was decent and Trump claims a strong economy. But the world is riddled with crippling debt, and global economies are already covered in plasters. Anyway, you know all this already, that’s enough doom and gloom for a Monday!

Whether you believe the stock market is overdue the mother of all crashes, or you think this bull market has just begun, today’s S&P 500 chart might well be indicating it’s time for a possible pullback of some nature.

As the S&P 500 creates new all-time highs, it’s clear from the Relative Strength Index (RSI) on this 4-hour chart that the index has become very overbought. The price action is continuing to coil-up suggesting it’s decision time soon. This phenomenon produces rising wedge shapes, which usually indicates the price will break down as the highs struggle to push further and the higher lows have no further space to manoeuvre.  As it happens there are a number of these patterns, a wedge within a wedge so to speak. So, it might be time to consider closing a long or indeed thinking of going short. 2890-2895 is likely to be the decisive range.  Initial short-term target zones can be found at 2855, 2845, 2834 with stronger support around 2790-2800.

Author: Stuart Langelaan

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