Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

S&P 500: Possible Bullish Wedge

By Dr. Arnout ter Schure Stock MarketsMar 11, 2022 02:16PM ET
www.investing.com/analysis/sp-500-possible-bullish-wedge-200619838
S&P 500: Possible Bullish Wedge
By Dr. Arnout ter Schure   |  Mar 11, 2022 02:16PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

To simplify the already complicated price action of the S&P 500 (SPX) daily, it helps to look at closing prices. A line chart accomplishes this as it takes out all the intra-day noise. Besides, the closing price is the essential price of the day.

Figure 1 below shows the SPX line chart over the last year. Things to notice are

  • So far, the index has experienced a ~13% correction on a closing basis, which happens every 1.6 to 2.5 years (source here).
  • Price appears to form a falling wedge (black-green dotted arrows, in the Elliott Wave Principle, called a diagonal). The wedge points down and should resolve higher when complete.
  • Potential positive divergence between price and several technical indicators is forming (blue dotted arrows: lower prices but indicators are less weak)

Figure 1. S&P 500 daily line charts with technical patterns and indicators:

S&P 500 Daily Chart
S&P 500 Daily Chart

Not shown here, but:

  • Despite only a ~13% decline, investor sentiment is extremely negative and similarly bearish as the lows in 2010, 2011, 2015, 2016, 2019, and 2020, which were in all cases even more significant corrections.
  • Average seasonality for a US Presidential Election Cycle Mid-Term Year tells of weakness into mid-March followed by a strong rally.

Is More Downside Likely?

The last time the SPX experienced a double-digit decline was September 2020 and March 2020. Thus the current “once every 1.6-2.5 year” decline is right on cue. How reliable are wedges, aka diagonals? Well, see Figure 1; for example, the index formed a bearish rising wedge July-August last year (orange arrows) on negative divergence (red dotted arrows) and resolved lower to the start of the wedge. Thus expect the same if the current bullish falling wedge resolves: retest of SPX4600+ in rapid order.

Sentiment can be a great contrarian indicator as the market often moves in the opposite direction of where the majority thinks it should go. Or, as legendary trader Jesse Livermore once said, “markets are never wrong; opinions are.” And. famous investor Warren Buffett once said that it is wise for investors to be “fearful when others are greedy, and greedy when others are fearful.”

Lastly, the index is right on track for a critical low in the middle of this month and should then rally strongly into April-May with the typical summer lull to follow.

Bottom Line

The S&P 500 is exhibiting a bullish pattern, called a falling wedge or an ending diagonal C-wave in EWP terms. This pattern projects a move to SPX4600+ for starters. Is that possible, given all that is going on in the world?

Yes, price patterns must be respected regardless, and meanwhile, sentiment is in the gutter, whereas average seasonality suggests a significant low should be formed around the current time frame. Thus, as long as the February 24 low holds, bulls are in charge, as I showed in my recent update on the Russell 2000. And the longer it lasts for the bears to move price below that low, the less likely it will become they succeed: time and price matter.

S&P 500: Possible Bullish Wedge
 

Related Articles

S&P 500: Possible Bullish Wedge

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (12)
Shane Zhang
Shane Zhang Mar 14, 2022 4:56PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Just let you know the death cross is happening right now.  Last two time it happened to SP500 result in at bottom, this time it may not be so lucky.  Also your prediction on war, it could be that it will happened earl than your forecasted timetable
Jeff Page
Jeff Page Mar 13, 2022 6:21PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
If a case can be made for AAPL, MSFT, AMZN, GOOGL, GOOG, TSLA, NVDA, JPM, we would see both SPY & QQQ move quickly upward. Don't fight inflation or the Fed.
Privacy Please
WTIHedge Mar 12, 2022 4:17PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It could get to 4600 but imo its more likely to get to 4000 first. If 4600 comes its in q4 but that is certainly not my base case.
jason xx
jason xx Mar 12, 2022 9:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great article do you have your own website?
Sabi Sab
SabiSab Mar 12, 2022 6:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Well,  doctor?!  If you say price pattern should be respected, would you rather respect a huge broken down head and shoulder pattern with neckline back tested and rejected, plus a realized death cross to boot, or bullish falling wedge which has not broken out of yet?  Moreover, all four major indices are below their 50 week MA for a few weeks already, last 2 times that happened, 2018 Q4 and 2020 Q1.
Ross Dre
Ross Dre Mar 12, 2022 6:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Doctor? Doctor. My sentiments exactly. Inflation is about to run crazy rampant bc of a fed that has been reckless by nore than a decade. I can look in clouds and see an elephant riding a bicycle… at the moment, im seeing the clouds look like its bullish divergence that is a hairline away from fracturing with conviction. Ask the bears how ofen their bearish chart patterns worked out on average the last four years. Rarely. This is the result of major manupulation going on and we’re about to pay the price. Thank you, doctor.
Peter ONeill
Peter ONeill Mar 12, 2022 6:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ross Dre  His Ph.D. is in environmental science - not economics/finance or anything to do with the economy/stock market. At best he can say he is qualified to gauge short term data trend lines nothing more
Dr. Arnout ter Schure
Dr. Arnout ter Schure Mar 12, 2022 6:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Ross Dre  that is just opinions, not what the charts tell
Dr. Arnout ter Schure
Dr. Arnout ter Schure Mar 12, 2022 6:31AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Peter ONeill  correct in that I am not an economist. Because I have a Ph.D., i.e. trained in science and the scientific method, I have an analytical mindset and am able to analyze data objectively without opinion. That is what is required to study the markets successfully.
MK MK
MK MK Mar 12, 2022 6:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The more I read this "doctor" the sure I am that he is hired to find as much as possible bag holders. There is absolutely no chance for 4600 in this environment. We will be lucky if 3500 holds
jason xx
jason xx Mar 12, 2022 6:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You are guessing. Of course 4600 is possible in the time frame he is suggesting. The market would rocket to 5K if Puketins head was separated from its body.
Peter ONeill
Peter ONeill Mar 12, 2022 6:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
jason xx  What have you been smoking?
Kool Aid
Kool Aid Mar 12, 2022 12:40AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thanks Doc!  Been hoping for an update from you on SPX.  Really appreciate it!
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Mar 11, 2022 10:08PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Finally, we will see big 'Sell in May and go away' correction taking SP500 to 3200
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Mar 11, 2022 10:05PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Let me give the fundamental analysis of Arnout EWP analysis. When Fed will get aggressive in next week FOMC meeting, lots of money will come out of gold and crypto currencies. That money will go into stocks Taking SP500 towards 4600. Even fresh 401k money also will push stocks higher until April big inflation bomb, the inflation nuclear bomb, will make every thing go down. Next CPI will be about 10% yoy.
MuraliKrishna Brahmandam
MuraliKrishna Brahmandam Mar 11, 2022 9:58PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Fed policy wedged between continuing to ride the stimulus lion 🦁 and getting eaten alive if Dr Jerome Bubble gets off the stimulus lion 🦁. Dr Jerome Bubble and the stimulus lion 🦁 will be a story in children's book; they should know what happened
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email