The S&P 500 tried to recapture the 200-day MA last week but failed to hold it on Thursday. In fact, it turned out to be a turning point that led to one of the worst down days since March. This doesn’t generally bode well for the market.
I’ve been on the fence about whether we would see a low form soon that would ultimately lead to higher prices or whether the market is set up for a major sell-off as we head towards the middle of the year.
The way the market is leaning it is looking increasingly likely that a sell-off to the March low and worse could be in order soon. The inverse head-and-shoulders scenario discussed during the week is quickly losing its appeal.
In the week ahead watch to see if the S&P can regain its footing, because if it can’t quickly find a low then it will be time to look for that much broader sell-off.
TheNasdaq 100 is leading the way lower for the broader market and that isn’t a good thing in general. The higher beta tech-heavy darlings of the market are being shunned in favor of more old-school names, showing a lack of tolerance for risk by market participants. The March low at 13020 is quickly looking like it will get tested, or worse.
The Dow Jones has been holding up much better than the SPX and NDX but was rejected hard on Thursday during an attempt to break the neckline of an inverse head-and-shoulders pattern. This is precisely why these patterns are not valid until the neckline has a confirmed break.
With the Dow already seeing the April lows at 34102 the inverse head-and-shoulders outlook is looking distant fast. Keep an eye on how this index can hold up in the days ahead, it is still the stronger of the indices and could continue to be an upside leader if broader market strength can re-emerge.
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