26 September 2022

Jason Sen

The E-mini S&P 500 has been holding a wide and volatile range from the low-2600 area up to resistance at 2805/20 over the past two months. See the daily chart below.

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If we expand that daily chart to show the price action over 2018 you see we have been holding the eight-month trendline support which is now at about 2615/10. Clearly this is important so a break below the October low of 2603 will be an important negative signal.

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Of greater significance is the arguable formation of a huge head-and-shoulders pattern. The April-to-October/December trendline support acts as the neckline. Therefore a break below 2600 confirms the completion of this very negative pattern with potential for a minimum 10% further losses.

Further negative confirmation would come with a break below the green 500-day moving average at 2592/91. Initially we target 2580/75 and 2560/55. A move below 2550 risks a re-test of the low this year at 2533/29.

We can see the neckline meeting the rising 100-week moving average at 2606/08 in the weekly chart below. This adds weight to the importance of the trendline and, bearing in mind the oversold conditions of this chart, a bounce from here is certainly possible.

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In the short term we meet minor resistance at 2642/44 and 2655/57 but stronger resistance at 2665/68. Above 2675 look for quite strong resistance at 2692/95.

The most important support of the week for the E-mini Dow Jones (for pretty much the same reasons as above) is from 24300 to 24230.

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The trendline in the daily chart above stretches back to February 2018, but you can argue this also acts as a neckline to a similar large head-and-shoulders pattern.

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A break below 24050, therefore, is a serious medium-term sell signal. Below the June low at 23978 we target important support at 23480/450 this week. We are likely to bounce from here on the first test. It could even allow a recovery to the neckline for a selling opportunity, in a perfect technical analysis textbook performance!

Jason Sen

Technical Analyst & Trader

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The content of this article is the personal opinion of the author and not InterTrader. You should under no circumstances consider the information and comments provided as an offer or solicitation to invest. This is not investment advice. The information provided is believed to be accurate at the date the information is produced.

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Update on US stock indices was first posted on December 10, 2018 at 10:25 am.
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