S&P500 Trend Line Support Broken: What's Next?

These next few days in the market will be pretty important given that the S&P 500 seems to have violated its primary trendline from the lows in March to the recent top.

So, the question to ask is, does the market drop further from here? Or is this simply another tiny pullback like we have been seeing? MarketClub has analyzed the S&P 500 in this video and has identified potential areas the market could drop to if things got nasty. Additionally, they outline the potential for a head and shoulders top to take place where we could see yet another mini-rally before finally selling off.

They've also noted the divergence in the MACD for some time as it has turned negative a while ago and is downtrending while the S&P continued to slowly head higher. Needless to say, they are cautious and are watching these next few days to see how the market reacts to breaking through this primary trendline. Watch their S&P 500 thoughts here.

Click to enlarge:

Comments

[TradingHelp...:]

Great article thanks.

Markets are due a correction. The rally since March went too far too quickly.

Also, much of the rally is liquidity driven, not from fundamentals or earnings.

Elliott Wave did a good report on the relationship between US equities and earnings which is worth a read:

www.elliottwave.com/r....

Nov 04 04:47 AM

[drewriders:]

Ridiculous. It has already corrected. You can put the trend line anywhere you want. Watch the jobs report. If the next few months gets better from prior months the market goes up. Very simple.

Nov 04 06:10 AM

[Mad Hedge F...:]

fty The scariest costume I saw on Halloween worn by a kid dressed as the Dow Jones Industrial Average. Listening to all of the gnashing of teeth and hand wringing after the Friday close about broken trend lines, accelerating downside volume, and crisscrossing moving averages, you would think that a time machine had just magically transported us back to the dark days of March, 2009. The volatility index (VIX) has popped from 20% to 30% in a week. Impressive. A new CNBC poll says that two thirds of investors are now expecting a “W” shaped recession, and that the next big move in the market is down. Once all of the performance chasers finally got the equity weightings they should have had last March, the market could only go down. We cut through support in the S&P 500 at 1050 like a hot knife through butter. Next stop: 980. Then hold your breath.

Nov 04 06:19 AM

[DormRoom:]

yes, the primary trend line has been broken, and has set a secondary trendline with a slightly lesser slope, but the trend is still up. confirmation of this is if SPX closes above 1065,; which it will.

Nov 04 08:07 AM

[Ted Kavadas:]

I find the chart shown to be significant for a couple of reasons. First, as noted the uptrend break. Second, the MACD (as shown) has been flagging for quite a while now (a negative divergence) and looks very bad now.

I have recently written a few posts on other signs of underlying weakness...they can be found at this link:

www.economicgreenfield.../

Nov 04 10:01 AM

[Fabien Hug:]

This market is "polluted" by government interventions, massive liquidity injections and guaranteed FED put option. You must look more at Washington than at the trend lines. Furthermore, I think that starting the trendline at March low gives a biased image. It was clearly an exceptional event and the trendline is too steep.

Nov 04 10:31 AM