The S&P 500 (.SPX) has been in an uptrend since March 2009. In the process, the secular uptrend has had its share of pullbacks and false reversing signals.
The S&P 500 recently marked a record high and chartists detected signs of possible further corrective pullback. A Gann fan line has been tested, but so far been able to provide support. Will this line be able to act further as a floor?
Source: Thomson Reuters Eikon
Recent moves
The latest leg of the uptrend started on April 11, 2014, and an apparent top was formed on July 24, 2014. Candlestick chartists surely noticed the doji pattern established at the highest high, which signals a possible bearish reversal.
Moreover, the index opened lower the following day, leaving a gap between the low of July 24 and the high of July 25. The candlestick charts aficionados probably identified a bearish reversal formation called three-river evening star.
The aforementioned technical signals point to further weakness in the overbought index.
The Gann fan line, named after the famed trader and analyst W.D. Gann, is key and showed immediate support. While this fan line has already been penetrated on an intraday basis, only a closing below it would suggest further losses. The next support is pegged at 1,954, which would be the 14.6% Fibonacci retracement level of the April – July uptrend. Of note, even a deeper correction, perhaps to the 23.6% Fibonacci retracement level at 1,932, would not signal the end of the S&P 500’s uptrend.
However, in the fast-moving financial space, traders always need to keep their ears to the ground and their eyes on their screens.
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