S&P 500: Broken – Week Beginning August 21 (Technical Analysis) (SP500)

The S&P 500 (SPY) accelerated lower this week, breaking potential support along the way and undoing all of July’s gains. Admittedly, my target of 4448-4458 for this pullback was off the mark. However, as I mentioned before, the levels on a chart are only one part technical analysis; Evaluating and reacting to price action is just as important. Once broken 4444, this week’s stock was persistently bearish and gave no reason to buy: on Tuesday it broke the 50-day moving average and closed weak, on Wednesday it broke the channel and closed weak, on Thursday it broke the lows of July and closed weak. Only Friday did it show any positive action, but it was far from a conclusive reversal and the pattern was very similar to the previous Friday. We all know what happened after that.

Due to the bearish action, there are some major issues that need to be addressed in this update. Can Are we still waiting for new highs? Will the 4325 bracket break? Could the S&P500 crash?

To answer these questions, a variety of proven technical analysis techniques will be applied to the S&P 500 over multiple time periods. The goal is to provide actionable guidance with directional bias, important levels, and expectations for price action. The evidence will then be compiled and used to make a call for the next week(s).

S&P 500 Monthly

Breaking the July low of 4385 is a bearish development and cancels out the bullish bias created by the strong close in July and the lack of a reversal pattern to the top.

For now, the monthly chart is neutral. A positive action, such as a close above 4385 and bullish weekly/daily patterns, could turn it backwards or, on the other hand, a break and close below 4325 would turn it bearish.

Note the volume profile to the right of the chart. Volume decreases significantly below 4325 and above 4600; trading (volume) tends to occur within the range.

The monthly resistance is 4593-4607. 4637 is the next level above, then the all-time high of 4818.

4325 is significant support followed by 4195-4200.

Denmark’s monthly exhaustion signal is at bar 8 of a possible August 9. We can expect a reaction at bar 8 or 9, usually only when higher highs are made, but this time it looks like the exhaustion has already started.

S&P 500 Weekly

He noted last week that the weekly bar was bearish and that “that’s not usually how you set up a reversal.” The exact same thing can be said this week and the small bounce on Friday was not enough to reverse the bearish bias.

Lower lows look likely before any sustained recovery attempt, which means there should be a test of obvious support at the 4325 pivot and the rising 20-week moving average. While this should hold in the close, there is a chance that a spike through this area will wipe out weak hands. A small weekly gap of 4298-4304 is a possible target. If there is a strong reversal above 4325 from the gap fill, it could mark a significant bottom.

4444 is the first resistance, then 4490.

As mentioned above, 4325 is significant support, with a small gap at 4298-4304 should this area wash out. 4195-4200 is the next reference.

An upward depletion count (Denmark) has been completed and is taking effect. A new bear count will be at bar 3 (of 9) next week.

S&P 500 Daily

The breakout of the 50-day moving average and the channel is important as it tells us that the trending sequence starting at the March low is over. Therefore, we are dealing with a larger correction that is probably commensurate with the February-March correction, or possibly the December 2022 correction. If it is the former, it would take the price down to the red channel currently near 4150. If second, time/price par would target around 4300, which is also the weekly gap area mentioned above.

There is, of course, another alternative: the drop could be the start of another bear market that points to fresh lows below 3,491. I am certainly open to this idea and am not biased in any way. However, I would need to see more evidence of a downtrend, starting with a weekly close below 4325.

The 50dma and channel will be resistance at the 4460 area. If the Monday session continues to bounce back on Friday like it did this week, I would be skeptical unless it breaks and closes above 4421 to show strength.

Potential supports are the same as on the weekly chart.

Demark’s negative fatigue had no effect. A recount is underway and will be at bar 5 on Monday, which means a reaction could be seen on Thursday/Friday at bars 8 and 9.

Events next week

Data is quiet again next week, which is probably bad news as it looks as if long-term yields will continue to rise until weak data or another catalyst triggers a reversal.

PMIs will be released on Wednesday, with the highlight of the week being the central bank meeting in Jackson Hole. Fed Chairman Powell will speak on Friday.

Probable movements next weeks

This week’s low of 4335 is unlikely to have been the bottom of this decline and unless key levels like 4421 can be recovered, lower lows are likely before any reversals play out.

A lower low would target the main 4325 level. At some point there could be a capitulation below this point, in which case 4298-4304 could hold. A recovery from this gap above 4325 and towards a strong weekly close would be a bullish sign.

The lack of recovery from the 4300 area and more sessions closing at the lows would maintain the bearish pressure. A weekly close below 4,325 would open 4,200 as a target.