Look Out! The S&P 500 Prints A Pattern Similar to 2008! (SPY)
Hi friends! Welcome to this update analysis on the US indicies, via the S&P 500 (SPY) ETF! Let's get right to it.
I've been watching this daily chart develop over time, and I've noticed a topping pattern that was also present in 2008, at the beginning of the Great Recession. On the left side of the chart, you can see that there is a pink rising channel. The S&P was trading inside of that channel for about five years, and then it put in a head and shoulders pattern at the top. In addition, a death cross was formed right as price was trading in the right shoulder of the head and shoulders pattern. From there, we can all see what happend. The SPY broke down below the neckline of the head and shoulders, and then below the channel, finding initial support on the 38.2% retrace of the 2003-2007 bull market. It then tried to rally back into the channel, but was stopped cold by the 200 EMA (in purple.) From the top of the head, on the head and shoulders pattern, to the bottom of the selloff, the SPY realized a devistating 57.5% fall.
The price action of this current bull market looks incredibly similar. The SPY has been trading inside of an uptrend channel for 10 years, it has formed a head and shoulders pattern at the present-day top, and a death cross is happening as price is trading inside of the right shoulder. Admittedly, we are still comfortably inside of an uptrend channel. Looking at the size of the head and shoulders pattern, and subtracting the height of the head from the neckline of the pattern, you can see that it projects a fall to the bottom of the uptrend channel. So, at the very least, I believe that we are very likely to see a fall to the bottom of the uptrend channel. From there, we can only speculate what will happen, but I do think there is an increasing likelihood that we will see a breakdown, and that the top of the bull market has been put in.
I say that mostly because of worsening fundamentals, on top of the toppy looking technical data. We have a trade war going on (that has actually existed on for decades) but fortunately, we now have an administration that has rightfully taken action to prevent further Chinese destruction of the US economy, via trade war response in the form of tariffs. That situation could worsen. Additionally, there is a growing global debt crisis, a bubble in the bond market, a federal reserve that has hiked interest rates while the US has engaged in trade tariffs, major economic problems in Europe, an apparent topping of EPS growth in major corporations, a flattening of the yield curve, and a whole slew of other negative fundamentals that I don't care to cite.
So, based on that, and the toppy similarities that are present on the chart now, compared to what was seen in 2008, I think there is an increasing possibility that we will break down from this uptrend channel. If the similarities continued we could see a decline similar to the dotted arrows that I have on the chart. Those aren't a 100% certainty, but an educated guess as to how this market could fall from here. If/when the neckline of the head and shoulders breaks down, we will fall to the bottom of the uptrend channel, where a bounce would be likely, followed by a breakdown of the channel, causing price to fall to the 38.2% retrace for initial channel breakdown support, just as it did in 2008. From there, we're getting increasingly speculative, but we can see that a decline of similar magnitude (57.5%) would lead exactly to the 38.2% retrace from the 2003-2007 bull market. If that isn't a crazy market fractal, then I don't know what is. Things are looking very toppy, and very ominous, but we still remain inside of an uptrend channel. Therefore, I wouldn't hang my hat on a bear market, until we see an actual breakdown of this uptrend channel. Good luck, and proceed with caution.
Ps. The 200 EMA has been acting as resistance too. Not good. =)
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
I've been watching this daily chart develop over time, and I've noticed a topping pattern that was also present in 2008, at the beginning of the Great Recession. On the left side of the chart, you can see that there is a pink rising channel. The S&P was trading inside of that channel for about five years, and then it put in a head and shoulders pattern at the top. In addition, a death cross was formed right as price was trading in the right shoulder of the head and shoulders pattern. From there, we can all see what happend. The SPY broke down below the neckline of the head and shoulders, and then below the channel, finding initial support on the 38.2% retrace of the 2003-2007 bull market. It then tried to rally back into the channel, but was stopped cold by the 200 EMA (in purple.) From the top of the head, on the head and shoulders pattern, to the bottom of the selloff, the SPY realized a devistating 57.5% fall.
The price action of this current bull market looks incredibly similar. The SPY has been trading inside of an uptrend channel for 10 years, it has formed a head and shoulders pattern at the present-day top, and a death cross is happening as price is trading inside of the right shoulder. Admittedly, we are still comfortably inside of an uptrend channel. Looking at the size of the head and shoulders pattern, and subtracting the height of the head from the neckline of the pattern, you can see that it projects a fall to the bottom of the uptrend channel. So, at the very least, I believe that we are very likely to see a fall to the bottom of the uptrend channel. From there, we can only speculate what will happen, but I do think there is an increasing likelihood that we will see a breakdown, and that the top of the bull market has been put in.
I say that mostly because of worsening fundamentals, on top of the toppy looking technical data. We have a trade war going on (that has actually existed on for decades) but fortunately, we now have an administration that has rightfully taken action to prevent further Chinese destruction of the US economy, via trade war response in the form of tariffs. That situation could worsen. Additionally, there is a growing global debt crisis, a bubble in the bond market, a federal reserve that has hiked interest rates while the US has engaged in trade tariffs, major economic problems in Europe, an apparent topping of EPS growth in major corporations, a flattening of the yield curve, and a whole slew of other negative fundamentals that I don't care to cite.
So, based on that, and the toppy similarities that are present on the chart now, compared to what was seen in 2008, I think there is an increasing possibility that we will break down from this uptrend channel. If the similarities continued we could see a decline similar to the dotted arrows that I have on the chart. Those aren't a 100% certainty, but an educated guess as to how this market could fall from here. If/when the neckline of the head and shoulders breaks down, we will fall to the bottom of the uptrend channel, where a bounce would be likely, followed by a breakdown of the channel, causing price to fall to the 38.2% retrace for initial channel breakdown support, just as it did in 2008. From there, we're getting increasingly speculative, but we can see that a decline of similar magnitude (57.5%) would lead exactly to the 38.2% retrace from the 2003-2007 bull market. If that isn't a crazy market fractal, then I don't know what is. Things are looking very toppy, and very ominous, but we still remain inside of an uptrend channel. Therefore, I wouldn't hang my hat on a bear market, until we see an actual breakdown of this uptrend channel. Good luck, and proceed with caution.
Ps. The 200 EMA has been acting as resistance too. Not good. =)
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-