After many weeks of relentless gains, the S&P 500 is showing first ‘chink in the armor.’ In fact, there are three persuasive reasons to expect lower prices, but there’s also one strong force that’s pushed the market continuously higher.
After weeks of strong price action, the S&P 500 is showing the first signs of weakness. Here are three early developments that may lead to lower prices:
1) Bearish reversal candle: On Tuesday the S&P 500 shot higher, but closed the day below its open price. This created a red reversal candle. A similar reversal candle on April 4 led to further weakness (blue boxes).
2) S&P 500 reversed at resistance. The S&P 500 reversed at the ascending red trend line (which connects all highs since April 2, 2012) and monthly pivot resistance (short red line) at 1,967 (both outlined in the June 22, Profit Radar Report).
3) S&P 500 moved above and dropped back below long-term resistance: In its 2014 S&P 500 Forecast (published on January 15), the Profit Radar Report projected a pre-summer market top at 1,955. Why 1,955?
1,955 is a convergence of two significant resistance levels: a) Long-term Fibonacci projection resistance (red horizontal line) and b) Parallel trend channel going back to the October 2011 low (black line).
The S&P 500 (NYSEArca: SPY) has run over similar setups before. Although this time may be different, we should keep in mind that one snow goose doesn’t make for a winter.
Especially since there is one force that continues to drive stocks higher. This force is not QE. No, it’s much more visible. In fact, it’s an ‘in your face kind of nuisance’ that’s easily assessed, but often overlooked.
The article below exposes the development that keeps extending the bull market’s life:
Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.
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