Last week S&P 500 attempted to reverse and rally above the resistance level at 4500 followed by a false breakout on 21 April 2022, which was a Wyckoff change of character bar (also happened in gold and crude oil as illustrated in the video) to start the downswing.
Wyckoff Distribution Pattern for S&P 500: Structure Analysis
Since the topping formation formed in November 2021, distribution in S&P 500 was manifested after the upthrust after distribution (UTAD) event in early January 2022 followed by sharp selloff as a sign of weakness (SOW) in late January 2022. Refer to the chart below for the Wyckoff event:
The sign of weakness in S&P 500 served as the largest down wave, signaled a damage of the uptrend since COVID-19 low in March 2020. The selling climax low on 24 January 2022 together with the automatic rally (AR), which was a technical rally formed after an oversold condition defined the range bound condition between 4200-4600.
The directional bias for the potential trading range as it was folding was bearish because of the sign of weakness as a result of the distribution structure in late last year. On top of that, the stock market breadth also shows bearish clue as discussed in the video.
The strong rally in mid of March 2022 created a Wyckoff upthrust (or a false breakout) followed by increasing of supply in the down wave, which pointed to further weakness for S&P 500.
Bearish Signal In S&P 500
Refer to the video below where you will find out how to identify the bearish signal based on the Wyckoff upthrust and the bearish volume pattern before the sharp selloff last Thursday and Friday.
S&P 500 Price Prediction With Point & Figure Chart
While S&P 500 is still within a trading range of 4100-4600, the directional bias is still bearish until proven otherwise. Based on this potential distribution structure in the trading range as it is unfolding, Point and Figure chart is adopted for price target projection for S&P 500, as shown below:
Should S&P 500 break below the support at 4100 formed by the swing low in February 2022, followed by the inability to rally up above 4280, selloff can be expected to test the lower target.
Based on the point and figure chart projection, there is enough causes built for S&P 500 to test 3650, which is another 14% drop. This is also the previous support level where the accumulation structure formed in 2020. This could be the low where the bulls are hoping for should it happen.
To violate this bearish scenario, S&P 500 is to reverse the downswing and rally above 4400, 4500 before committing above 4600 followed by a shallow pullback as a test. Otherwise, the directional bias is still to the downside for S&P 500.
Since the Wyckoff change of character bar showed up on 21 April 2022 in S&P 500, leading industry groups such as oil and gas, gold miners, commodity milling, agricultural chemical, coal, etc… also experienced a sharp selloff despite the outperformance such as in crude oil and gold futures.
This suggests at least a pause in these leading industry groups if not a reversal yet. Ultimately, this is still a stealth bear market with lots stocks already dropped 50-80% despite S&P 500 only dropped 11% year to date. Visit TradePrecise.com to get more stock market insights in email for free.
This article was originally posted on FX Empire
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