On August 27, we published our first technical outlook pointing toward a potential steep market correction. In that article, we warned investors of an unfolding bearish technical pattern called a “rising wedge.” But back then, the rising wedge pattern still needed confirmation from sharp downward price action. Today’s steep drop in the S&P 500 Index (SPY) seems confirm the bearish pattern. Let’s take a look.
After posting a record high near 2,941 on September 21, the S&P 500 Index turned sideways. As the chart above shows, today’s closing is likely to confirm an unfolding bearish pattern, as the index has fallen below the lower line of the rising wedge.
This confirmation could trigger a further market sell-off in the coming sessions—at least towards an immediate support level near 2,790. The 14-day setup of the RSI (relative strength index) indicator was hovering below the line of equilibrium, near 46.2, reflecting weak momentum. Plus, the RSI indicator has also diverged with the upward market trend over the last couple of weeks.
Some fundamentals might look strong at first, with September’s consumer sentiment index at 100.1. Just before midnight on Sunday, September 30, President Donald Trump made a trade deal with Canada that barely met the deadline. The new trade deal, which replaces NAFTA, is called the United States–Mexico–Canada Agreement, or USMCA.
However, things might not be as good they seem on the surface. Many experts have warned that the new deal—USMCA—could boost vehicle prices in the United States. “Experts caution that it’s unclear whether the deal will lead to more jobs, and some warned that consumers could take a hit from higher vehicle prices,” USA Today reported on October 1.
Tesla stock is trading with over 5% losses today. See Tesla Down 5.4% Today: What’s Driving the Pessimism? To learn what’s ahead for the markets in October, see October Should Be Full of Thrills and Chills.