The S P 500 is creating what appears to be a rising wedge consolidation pattern. The technical analysis pattern referred to as a ‘rising wedge’ is not necessarily a major topping pattern. It is usually more of a consolidation type pattern or pause before moving higher.
S P 500 index rally getting tired?
As you probably already know, most stocks on the exchanges follow a similar path as the S P 500 does. Not all of them, but the majority do. So clearly it is pretty important to know where the S P 500 is going on a short, medium and long-term basis. Otherwise you risk fighting the predominant trend, and that my friends is a very quick way to get in trouble. Since 2003 the S P 500 has powered higher with extraordinary strength and resilience. The move from that time has for the most part been with consistently good volume and price action. The almost one year long retracement which occurred during 2004 was I believe only a .382 fibonacci retracement from the lows of march 2003 to the high at the end of 2003. The fact that the retracement was so minor is indicative of significant internal strength in the this particular index.
But the question always remains, when will we top out in the S P 500? And what will be the signal? To find the answer to this question all we can do is follow the index on an intermediate term basis and see where technical levels are either held or violated. For example in the technical analysis chart shown on this page there does appear to be a rising wedge pattern. I don’t like this pattern too much because it depicts a gradually weakening demand situation in the technical sense. However as I mentioned above rising wedges are usually not final topping patterns. In many cases after the price breaks down from within the pattern, price simply returns to the base of where the pattern began, in this case for the S P 500 it would be the 1165 level. If the S P 500 does move to that level then it will be very important to examine the volume on the test of 1165 in comparison to other price swings also at that level. If the S P 500 does get to 1165 and tests the other swings at 1165 on substantially higher volume, then it could spell some trouble for this index and warn or a longer term consolidation and possible break down lower.
Will the S P 500 be able to maintain its strong up trending action since 2003?
Stay tuned!
Peace. I’m out.
tc