SPX Daily Chart H&S Gaps

The head and shoulders pattern for the S&P is shown in purple. Yesterday the neckline ruptured at 1340 but without any great authority. The red lines in March show the rising wedge and negative divergence across the board that Keystone highlighted back then creating the market top and smack down. For the price action over the last month, a lower low in price occurs, with the green lines showing positive divergence desiring a bounce, which may occur today due to the green futures markets, but note the red lines for RSI and the MACD line that want to see another low in price after a bounce occurs.

There is a gap above at 1353-ish that needs filled. The 100-day MA is 1351.00 which gave way yestereday; this serves as overhead resistance as well. Near term support below is the gap and strong support at 1326, and then the support gauntlet at 1314-1318. The rupture of the H&S neckline can be verified once the strong 1337 support would give way. This would place the downside H&S target of 1260 in play.  Once price would firmly drive below the 1340 neckline, a back kiss back up to 1340 would also be in play.  Note that the downside target of 1260-ish is the exact area where the year started, at 1258.

Also of interest is that price used the 100-day MA as support in December but now has failed that support.  The 20-day MA is under the 50-day MA which is bearish.  Price is under the 20, 50 and 100-day MA's, bearish, showing potential for the moving average ribbon to roll over. Price is now making lower lows and lower highs, as shown by the red channel, since the top occurred in late March. A price move to the top of the red channel cannot be ruled out but appears unlikely. The wild card is that as markets drift lower, they drift closer to Chairman Bernanke announcing QE3, and some type of clarity is expected from the Fed in June since Operation Twist is ending. QE3 will launch markets higher.

Thus, the chart is best taken day to day.  Yesteday late day Keystone pointed out the uber low NYAD, the high TRIN and the further move up in the CPC, all agreeable to see a snap back rally, which may occur this morning. The RSI is not oversold so this would hint at lower prices moving forward to give the RSI a chance to dip under 30. The key for today is watch the overhead gap at 1353-ish, the 100-day MA at 1351, the neckline at 1340, the critical strong support at 1337 and gap and strong support at 1326. The 150-day MA is sloping up which remains bullish for stocks. Projection is a bounce in the near term but lower prices moving forward. A failure of 1337 verifies that the 1340 H&S neckline has failed and places the lower targets under 1300 and down to the starting year number at 1258-1260 in play. This information is for educational and entertainment puporses only.  Do not invest based on anything you read or view here.  Consult your financial advisor before making any investment decision.