The S&P 500 has been trending down since the January 2022 peak, but this drop could be a long correction after a massive rally. Typical of corrections are pattern shaping and retracement amount. Today’s article to highlight this setup and show the key level to beat going forward.
The price chart shows a massive increase into January 2022 and an extended decline for the rest of the year. The long-term trend is down with a large falling wedge looming. Note that this wedge is down by half of the previous increase. The falling wedge is typical of a corrective pattern and 50% is the base case for a retracement. Charles Dow noted that the fixes retrace one to two-thirds of previous progress, with half being the base case. Think of it as two steps forward and one step back.
There is a bullish setup on the price chart, but the trend is bearish until proven otherwise. In other words, I’m bearish until I see evidence to the contrary. There are two things to see. First, a move above the December high (410) would trigger a wedge breakout and a higher high. Second, pay attention to the trend composite to become positive. This indicator aggregates signals from five trend-following indicators. It has been declining (negative) since mid-April.
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Arthur Hill, CMT, is Chief Technical Strategist at TrendInvestorPro.com. Focused primarily on US stocks and ETFs, his systematic approach to spotting trends, finding signals within trends and setting key price levels has made him a valued market technician. Arthur has written articles for numerous financial publications including bars and Magazine for stocks and commodities. In addition to his Chartered Market Technician (CMT) designation, he holds an MBA from Cass Business School, City University, London.
