False breakdowns and false breakouts can be some of the most powerful reversal patterns in the market.
We saw the start of one last Friday, when the
SPX
closed below the key 2347 low from December 2018. Many traders had been watching that line in the sand as key support since the selloff began weeks ago.
The bears managed to score some early victories with a big limit down on Sunday night. But then the Fed unloaded a bazooka full of cash and the sellers couldn’t push prices any lower. Unlike other limit-down moves, this time the regular session had no follow-through below the overnight price action. That was the first sign things were different.
The second sign – and real signal – came first thing the next morning when SPX ripped above 2347 and never looked back. That erased the significance of the breakdown and confirmed the key support line. The candle’s long tail also created another potentially bullish reversal pattern: a hammer candlestick.
In conclusion, support and resistance lines are always important but the stage of the move can matter more. The initial breakdown under 3200 on February 25 was a big deal because it confirmed the beginning of a trend. But after four weeks of vicious downside, SPX’s failed violation of 2347 could mark the end of its current decline.
We saw the start of one last Friday, when the
SPX
closed below the key 2347 low from December 2018. Many traders had been watching that line in the sand as key support since the selloff began weeks ago. The bears managed to score some early victories with a big limit down on Sunday night. But then the Fed unloaded a bazooka full of cash and the sellers couldn’t push prices any lower. Unlike other limit-down moves, this time the regular session had no follow-through below the overnight price action. That was the first sign things were different.
The second sign – and real signal – came first thing the next morning when SPX ripped above 2347 and never looked back. That erased the significance of the breakdown and confirmed the key support line. The candle’s long tail also created another potentially bullish reversal pattern: a hammer candlestick.
In conclusion, support and resistance lines are always important but the stage of the move can matter more. The initial breakdown under 3200 on February 25 was a big deal because it confirmed the beginning of a trend. But after four weeks of vicious downside, SPX’s failed violation of 2347 could mark the end of its current decline.