S&P 500 closed yesterday a few cents above key support at 4,328. RSI is back below 40 threshold adding to the bearish outlook strongly indicating S&P 500 to drop lower.
If S&P500 is closing below 4,328 on the week the medium-term downtrend has been confirmed and a sell-off down to around 4,200 is in the cards.
The 200 daily Moving Average currently around that level will add some support.
However, if medium-term bearish trend is confirmed there is downside potential to 4,100-4,050 support area.
To reverse the down trend a close above 4,512 is needed
Shoulder-HEad-Shoulder pattern? One can argue S&P 500 has formed a Shoulder-Head-Shoulder pattern. Ideally the two Shoulders should be almost equal height and same distance from the Head.
In this case they are neither. However, that doesn’t mean S&P 500 will not act as if there is an SHS pattern which is why I have indicated it on the chart.
The two vertical arrows are indicating the potential distance S&P can move after is has broken below the Neckline, which hasn’t- at least not just yet.
But if S&P 500 does travel the indicated distance there is potential down to 4,050. However, often the distance is cut short to around the 0.618 Fibonacci level at around 4,155 which is very close to the 200 Moving Average and the upper range of the Consolidation area.
S&P500 could also be forming a Descending Triangle like pattern. Breakout is usually 2/3 of the way to the apex (where the two lines meet) so there is still a bit of a distance.
Regardless of it being an SHS or triangle pattern the potential downsides are almost the same
To demolish the SHS pattern a close above 4,540.