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S&P 500 Technical Analysis: US Stocks May Fall if H&S Pattern Holds

S&P 500TECHNICAL OUTLOOK: BEARISH

  • S&P 500 may drop after carving out Head and Shoulders chart pattern
  • Confirmation of the bearish setup calls for a daily close below 2726.50
  • Trader sentiment studies still broadly bullish but a turn may be brewing

The S&P 500 may be carving out a bearish Head and Shoulders (H&S) topping pattern after breaking rising trend line support guiding the bellwether stock index higher from late-March lows. Confirming the setup seems to call for a daily close below the 2726.50-71.00 area, which approximates its neckline.

From there, sellers are likely to face the next layer of support in the 2603-26 zone. However, the measured down move implied by the H&S setup seems to suggest a push through the 2600 figure is probable if the pattern develops as advertised.

That would portend deeper losses to follow. An interim stop at minor support marked by the December 2018 low at 2316.75 may then set the stage for a challenge of the March 23 low at 2174.00. Invalidating the bearish setup appears to call for prices to establish a foothold back above the 3000 figure.

S&P 500 stock index price chart - daily

Daily S&P 500 chart created with TradingView

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S&P 500 TRADER SENTIMENT

Retail sentiment data shows 77.86% of traders are net-short, with the short-to-long ratio at 3.52 to 1. IG Client Sentiment (IGCS) is typically used as a contrarian indicator, so the skew in current positioning suggests that the S&P 500 is biased upward. However, the tilt in sellers’ favor has narrowed compared with a week ago, hinting that a turn in the opposite direction may be in the works.

S&P 500 stock index chart, trader sentiment

See the full IGCS sentiment report here.

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S&P 500 TRADING RESOURCES

— Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter