Submitted by NorthmanTrader.com, [6]
If you been following our technical chart segment [7] you have seen the evolution of one particular chart: That of the daily $SPX. The rejection of price on Friday, after yet another push higher, occurred at the level of an arch that we have been observing unfold over the past year. Now there is no technical pattern called the “arch”, but one cannot deny that since September 2014 price rejections have taken place along very specific points that now offer stunning symmetry.
It is not only the arch here which has proved superbly precise, but the confluences of price rejections are incredible.
Consider:
September 2014: 2019.25 September 2015: 2020.32
December 2014: 2093.55 October 2015: 2094.32:
Coincidence? Hardly:
[8]
One can’t help but wonder if all of January – July 2015 was simply the building of a giant head.
Consider also that the MACD is at its most extended since the year 2000 top and the RSI actually made a lower high versus the December 2014 2093.55 peak. Also of note is that the $SPX is the furthest disconnected from its 50MA to the upside in years.
Taking these facts into consideration, especially in context of the weekly [9] and monthly [7] charts we’ve been highlighting, the potential for a giant heads and shoulders pattern remains fully in play.
What will break the pattern? Likely a decisive and confirmed close above 2094 on a weekly basis and/or new highs.
What will confirm the pattern? New lows and a break of the lower neckline.
The target? Depending on how you define the neckline (were it to break) it invites a visit back to 2007 highs. Yes the pattern is indeed this large:
[10]
That would be a drop of over 25%. A very steep correction into 2016 and something that central banks are clearly desperate to avoid. Central banks, as academia, know the truth [11]:
“It is unclear whether the sell-off is over or has slightly paused; in the latter case we could be headed for a potentially very serious equity slump by historic standards,” economists Adam Slater and Melanie Rama said in their report. “A sharp correction in global equity prices would pose a significant threat to the global economy. By reducing wealth, Oxford’s economic models suggest a 15 percent drop in the MSCI could cut the level of world gross domestic product by as much as 0.7 percent after two years. A 30 percent shock would knock off as much as 1.5 percent.”
Central banks can’t afford a big correction to take place as it goes counter to their mandate, a stable growing economy, hence they interfere every single time a correction of size is about to unfold. And any threat to the global economy must be prevented. So it’s no accident that we have seen all price expansion since $SPX 2020 in October come on the heels of Mario Draghi hinting at additional QE coming in December and the PBOC cutting rates just a day later. Now that fiscal year end mark-ups are over for many funds buyers have to prove how committed they are to driving markets higher.
Price will ultimately confirm how this will play out, but altogether this $SPX chart is an amazing construct of symmetry and, as a fan of structures and symmetry, it certainly has my attention. I can’t recall ever seeing such a precise structure.
