In the week ending August 24, the S&P 500 Index (SPY) increased 0.9%. Last week was the sixth consecutive week that the index witnessed less than a 1% weekly change. In the week ending August 17, the S&P 500 benchmark rose 0.6%. Last week, during an interview with Fox News, President Trump said, “If I ever got impeached, I think the market would crash, I think everybody would be very poor, because without this thinking, you would see — you would see numbers that you wouldn’t believe in reverse.” Aside from President Trump’s statement, we’ll focus on finding out what technical analysis says about a possible broader market crash (QQQ) in the near term.
Will the uptrend end?
As shown in the daily price chart above, the S&P 500 benchmark is seen forming an important reversal pattern called a “rising wedge” in technical analysis. In the Elliott Wave Theory, the pattern is also known as an “ending diagonal triangle.” The ending diagonal pattern mainly indicates a weakening price trend and could be considered as an early sign of a possible trend reversal.
The ending diagonal pattern consists of five price waves, as noted in the above chart. A possible downward correction will likely start at the end of the fifth wave. According to the analysis, the S&P 500’s uptrend could be confined to nearly $2,900.
Should investors be cautious?
There has always been an unending debate between technical and fundamental analysis supporters. Technical analysis is a study of historical market patterns based on human phycology, which tend to repeat themselves. Even if you don’t use technical analysis as the basis of your investment decisions, you might consider using technical analysis in conjunction with market fundamentals.
An ongoing global trade war is already taking a toll on many US companies’ (XLY) profitability like Coca-Cola (KO), Ford (F), General Motors (GM), and Tesla (TSLA). As of August 24, while Coca-Cola, Ford, and General Motors have lost ~0.5%, 21.6%, and 12.3%, respectively, YTD (year-to-date), Tesla has increased 3.7% YTD. In comparison, the S&P 500 Index has risen 7.5% YTD.