Technical analyst Clive Maund takes a look at the current state of the U.S. stock market, and reflects on how the outcome of the impending election might steepen a decline.
A number of subscribers have written in asking about the technical state of the broad U.S. stock market, which we haven’t looked at for a while. With the failure of an important support level a few days back and the election drawing near, it’s certainly a timely question.
We’ll start by looking at a 6-month chart for the S&P500 index, on which we see that early this week, forced lower by the “distribution dome” shown, it broke down below important support. Ideally, we should have shorted it on its last approach to the dome boundary after the middle of October, but we missed the chance. Now it has already arrived at its rising 200-day moving average, which may generate a near-term bounce back up to the failed support; this is now resistance, where the market may again be shorted, perhaps by means of puts in something like SPDR S&P 500 (SPY).
Here we should note that despite the 200-day moving average still rising, this is now a weak picture, for reasons that become clearer on the 1-year chart. In any case, if the market continues to drop, the 200-day moving average will quickly roll over and turn down.
On the 1-year chart all becomes clear, and we see why the market is now dropping away. It is being forced into retreat by the fine, large dome pattern shown now pressing down on it from above—this is what triggered the support failure early this week. Volume has been persistently heavy on this drop, which is bearish, and the moving average convergence/divergence (MACD) indicator shows that there is plenty of room for it to drop …read more