Potential Topping Patterns on the S&P 500
The S&P 500 has steadily trended higher since November. However some chart patterns suggest it may be topping out – even if there isn’t significant downside risk.
First, a parallel price channel has become increasingly visible, especially after the most recent surge. Prices are currently at the top of the channel.
Second, the last three sessions have featured a small doji, a large bearish outside candle and a smaller inside day. Those candlesticks, appearing near a resistance line like the top of the channel, could signal a potential reversal.
Finally, stochastics have reached an overbought condition.
The bulk of earnings season has also passed, with few major companies left to report. That lack of catalysts could also diminish enthusiasm.
We don’t want to sound overly negative because the longer-term trend remains very bullish. But, given the index’s position at the top of the channel, it could retrace about 100 points without breaking the trend.
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First, a parallel price channel has become increasingly visible, especially after the most recent surge. Prices are currently at the top of the channel.
Second, the last three sessions have featured a small doji, a large bearish outside candle and a smaller inside day. Those candlesticks, appearing near a resistance line like the top of the channel, could signal a potential reversal.
Finally, stochastics have reached an overbought condition.
The bulk of earnings season has also passed, with few major companies left to report. That lack of catalysts could also diminish enthusiasm.
We don’t want to sound overly negative because the longer-term trend remains very bullish. But, given the index’s position at the top of the channel, it could retrace about 100 points without breaking the trend.
TradeStation is a pioneer in the trading industry, providing access to stocks, options, futures and cryptocurrencies. See our Overview for more.
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