Equities Topping – Breakdown Ahead?

With the S&P 500 at 2464, it continues to hover within 1% of a new all-time high. Yet, internally, the market is deteriorating with more and more stocks moving below their 50-day and 200-day moving averages.
Throughout 2017, the story of the rise in the S&P 500 has been a story of a fairly narrow list of very large-cap stocks that have contributed to nearly half of the index’s strong advance. Many of those stocks are very close now to breaking down through key support with the S&P Index also flirting above key levels. For the S&P 500 (last at 2463.36 as we pen this update), a couple of key levels to watch are the 2458 level, which is close in support, and then just below that is the 50-day average at 2454.50.

A break below 2454.50 would be short-term bearish and would turn up the credibility on the potential that the S&P 500 has been moving in a large distribution top over the last few months. It is potentially a head and shoulders pattern, but would still need a downside break down to confirm that outcome. Until the S&P breaks below the 100-day average (at Point c on the chart above) at a reading of 2431.15 AND key horizontal support at approximately 2410, it would be too soon to call a top is in place. Mind you, that does not mean that the entire structure right now looks incredibly vulnerable. In addition, any time we are talking about the potential for a serious break down in the stock market, we always want to watch several different indices for confirmation.

This post was published at FinancialSense on 09/08/2017.