About one month back, I posted a series of articles examining how the markets were looking versus our Crash Index. The appearance of multiple confirmed Hindenburg Omens raised my eyebrows. I said at the time we were looking at either a mini-crash or significant pullback in the August-October time period, but not a full-on crash or change in trend until 2018.
The equity markets sold off fairly heavily today, especially compared to the recent non-existent price fluctuations. Prior to 8/10/17 the S&P had traded a record number of nearly flat sessions in terms of closing prices. As usually happens in a coiled market, it broke out hard and it was down sharply as expected. Technology stocks led the way, down 2.1% on the day. Of the safe haven investments, gold was up .8%. VIX exploded up 44%, but to a still-moderately low 16 handle.
Looking at the SPX weekly and daily charts, we can observe some minor technical damage was done to the daily trendline (but not the weekly yet).
You can see on the daily chart of the S&P 500 index that there is the makings of a potential head-and-shoulders pattern. As I stated in the series, I do not love chart patterns because of how routinely they bust. Still, a somewhat more reliable chart pattern like the H&S can be informative if used as only one tool in your trading arsenal.
There was also a bearish crossover of the MACD signal lines on the weekly, joining the preexisting bearish Histogram and Relative Strength Index divergences. MACD Histogram divergence on longer time frames, as we wrote earlier, is one of the strongest indicators of a trend change. It exists on the weekly chart, but not the monthly. This is another clue that there should be a decent pullback in the works this fall, but likely not a full-on crash. The weekly chart signifies intermediate trend changes. The monthly portends changes in bull and bear markets. Volume remains, thus far, unconvincing.
All-in-all, I’ll stick with what I said in the conclusion of the series. It seems like the late summer/early fall is starting right on time. We should be looking for a little more weakness in the next few days to form the neckline of the H&S pattern, followed by a multi-week bounce to sculpt the right shoulder. This should take about 4-6 weeks before the decline/pullback begins in earnest, so probably around mid-to-late September.
As a reminder: whenever I post stock market stuff, this is for education and informational purposes only. Once upon a time, I held FINRA Series licenses. But I am not now, nor have I ever been, an investment advisor.