Index in Focus: S&P 500

As price approaches the apex of the ascending wedge formation, one would expect that price would break lower

Uptrend 3

In January 2018, S&P 500 prices made a strong, short-term move lower from 2878.5 to 2529, a 12% drop.  Who could have guessed at the time that those 350 points would be the beginning of a megaphone formation, within which the large company index would trade for the next 34 months?  However, after Covid struck around the globe, the world was awash with cash and investors were looking to put money to work. The S&P 500 made a Covid low at 2174 during the week of March 23rd,2020  before closing that week up over 10%!  The index finally broke out of the top of the megaphone formation during the week of November 23rd, 2020.

Source: Tradingview, Stone X

Your complete guide to the S&P 500

Since that breakout near 3600 in November 2020, the S&P 500 has been moving aggressively higher.  After moving above the megaphone trendline, the index began forming an ascending pattern, which it remains in today.  Notice that each time the S&P 500 tried to move below the bottom trendline, buyers came in and pushed prices back into the wedge. However, price is nearing the apex of the wedge.  The bottom trendline of the rising wedge now acts as support near 4480. The top trendline, although above recent highs, acts as resistance near 4575.  Less than 100 handles separate the 2 trendlines!  The expectation of price for the breakout of an ascending wedge is for it to move lower.  The target is a 100% move lower, or 3210! 

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On the daily timeframe the are many support levels before retracing 100%.  However, below the break of the trendline of wedge near 4480, are numerous horizontal support levels at 4352.6, 4234.2, and 4138.6.  Recall that each time price traded below the trendline of the ascending wedge, buyers came in and bought the dip!   The 200-Day Moving Average sits just below there at 4090.7 and then the 38.2% Fibonacci retracement level from the September 2020 lows to the September 3rd highs, near 4041.3. 

Source: Tradingview, Stone X

On a 240-minute timeframe, price appears to be forming a rounding top and possibly a head and shoulders formation, though the head is not complete and the right shoulder is not formed. 4475 is the 38.2% Fibonacci retracement level from the August 19th lows to the September 3rd highs.  Recall that this is also near bottom level of the ascending wedge trendline (4480). 

Source: Tradingview, Stone X

If price can hold, or if a dip below the wedge trendline (see daily chart) is bought, there is short-term resistance at the downward sloping trendline near 4521.7 ahead of the 4551 all-time highs.  If price makes all-time new highs, the next resistance is at the top trendline of the ascending wedge, near 4585 (see daily). 

Note that on the daily timeframe, price hasn’t traded above the top trendline of the wedge during the entire move higher.

As price approaches the apex of the ascending wedge formation, one would expect that price would break lower.  The target for the break of an ascending wedge is a 100% retracement, or 3210!  Also, don’t forget about the top trendline of the megaphone formation, which crosses near 3820 (see weekly).

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