The S&P 500 Is On The Brink Of Major Collapse
The S&P 500 is going to move much, much lower. The broad market index has been pushed to it’s breaking point and frankly, I think the cracks are already showing. The underlying fundamental conditions remain positive, it’s not like we’re in a recession, but the fear of recession is real and it is festering. The biggest news in terms of recession and what may happen and when is the yield-curve. The U.S. yield-curve went into full-inversion early this week and signals recession will come within 18 months. The caveat though is this, the data and some experts think it is a false signal. This week’s round of economic data wasn’t strong, it wasn’t robust, but it was positive, in some cases accelerated, and labor markets remain tight, the consumer healthy.
The daily chart of the S&P 500 is painting a mixed-picture. In some ways the index looks like it could throw off a pretty strong buy signal but I think that is just hope lingering. The MACD is bearish but shows a double peak where the second is lower and consistent with support at current levels. Current levels appear to be supportive because the price action is forming a potential Double Bottom Reversal. The risk is that price action is still low within the potential reversal pattern, resistance is likely strong at the short-term EMA, and stochastic does not even come close to confirming. Stochastic is still pointing lower which means the overall trend is still down and, since momentum is still bearish, I think we’re going to see prices move lower rather than higher in the near term.
The weekly chart of the S&P 500 is more bearish. In fact, it is just plain bearish. Both MACD and stochastic have formed bearish crossovers in tandem with the index peak. The index has moved below the previous all-time which is a very important support/resistance pivot point. Since the fall, the index has retested and confirmed resistance at this level where I think resistance will remain. The long-term 150 day EMA is providing some support but it is tenuous. A move below the 150-day moving average would be very significant, such a move could lead the S&P 500 down to the 2,700 or 2,600 level.
The key will be what happens on Monday. Monday is when the Weekend Warriors do a lot of their trading. They’ve had the weekend to think about what’s happened, all the gurus (myself included) will have put out their analysis, and the urge to sell may be strong. Maybe not, we’ll see. If prices rally on Monday, for whatever reason, I won’t be bullish until I see the index get back above 2,940.