The rising wedge pattern have been forming on the S&P 500 chart since March. A rising wedge is a pattern with prices bouncing between two up-sloping and converging trendlines. During the formation of this pattern, the range of fluctuations is systematically reduced. Each increase in price is quickly eliminated by new supply.
What's more, apart from the rising wedge, there was quite a significant divergence on the MACD oscillator. When the prices rise to a new high and the oscillator is falling the bearish divergence occurs. In the theory a bearish divergences often signal a sharp and significant reversal toward a downtrend. From the technical point of view, the breakout of the lower limit in the wedge pattern has been the confirmation for the bears, which opened the way to new lower levels. From the point of view of fundamental events, the main factor for supply in the stock market was the announcement by US President Donald Trump about raising tariffs on Chinese products from this Friday.
The market scared off such a turnaround, which led to an increase in risk aversion and sell-out on the stock market. In addition, the contract for the VIX fear index has increased, which may also be accompanied by short squeeze, due to the earlier significant positioning on the decline of this contract among speculators - according to CFTC data.
Returning to the S&P 500, it is worth paying attention to the fact that in addition to the wedge, a double top pattern may also appear here. An important event was the quick rejection of the new historic high and the return to the lower levels.
Chart: S&P 500, D1. Conotoxia trading platform.
The potential support areas are set by the 23,6 and 38,2% of Fibonacci retracements and also by the 200 moving average near 2776 points.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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