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I've recently presented articles which highlighted the S&P 500's current technical parameters. I also presented a possible inverted head-and-shoulders pattern, and suggested, "We should know in short order if the pattern is legit, or if it fails." The pattern did indeed fail, as the market ripped back down through the neckline in relative short order when plans for 2012 fiscal cliff resolution evaporated. However, some technical chart pattern clarity was rendered when a month-long minor-minor bullish trend channel formed, and has subsequently experienced support trend-line failure. But before I present two charts, I'd like to briefly remind you that this is an unprecedented time, and decisions, or lack of decisions, made by policy makers can change short-term market direction on a dime, and can amplify the market's movement.
The chart below is a daily bar chart of the S&P 500 Index. The thick red parallel lines at the chart's perimeter represent the major bullish trend channel that is in place. The market's trading from August of 2011 to the present can be seen to trade within another smaller bullish minor trend channel. Finally, a third bullish trend channel of even lesser degree has confined the market's most recent trading until yesterday, when trend-line support was broken. Today the market has followed through with downside momentum, and the minor support area of 1420 has also been breached.
The chart below is a 60 minute bar chart of the S&P, and is a microscopic close-up of the minor-minor bullish trend-channel, whose support trend-line was breached yesterday. It is generally inferred that once a bullish trend-line is violated, odds are the bullish trend is over. Contrary to popular belief, it does not infer immediate bearish implications. Instead, a market is then viewed as being neutral or bearish. However, initial support at 1420 has indeed been violated; while stronger support generated from the trend channel of greater degree rests in the 1380 area if the market's present downward slope remains. Further support rests in the 1350 key support area.
In summary, the S&P 500 Index has broken minor-minor trend channel support and minor support at 1420. Three additional support areas rest below – the 1380 area, 1350, and final major support rests at the major channel's support line. Lastly, it must be remembered that policy decisions can change the current market's direction promptly and decisively. Therefore, daily market surveillance is advised.
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© 2012, Dominic Cimino of Preferred Planning Concepts, LLC (You can explore the services offered by Preferred Planning Concepts by viewing us on our website at www.ppcplanning.com) Any redistribution, reprinting, or reference to this chart or content is allowed so long as reference to the author and source is acknowledged.
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