Tuesday's Tumble? Don't Sweat It Yet

Posted by jbrumley on September 12, 2023 10:57 PM

As far as trading sessions go, that wasn't the one most long-term investors were hoping for. Late last week and into this week it looked like the bull market was once again trying to rekindle itself. Tuesday's tumble undermines that budding effort.

But, it's hardly the end of the world or the end of the line for the effort. There's still room and opportunity for the bulls to get things back on track.

Take a look at the daily chart of the S&P 500 below. The index opened below its 50-day moving average line (purple), tried to climb back above it, but then ultimately failed to log an even-lower close. Nevertheless, the S&P 500 is still holding above its 20-day moving average line (blue) at 4445. As has been the case so often of late, the index is stuck in the middle.

The NASDAQ Composite's daily chart looks about the same. In fact, it looks so similar there's no real need to even plot it here. The same goes for the Dow Jones Industrial Average.

That being said, we will zoom out to a weekly chart of the S&P 500 to point out something that's too obvious to dismiss any longer. That's the converging wedge pattern that's been forming since July's peak, framed with yellow dashed lines on the chart below. Most of the falling highs have been in the same straight line, as have most of the rising lows. It's happening to often to pretend it's not happening.

Note that the lower edge of the converging wedge is right where the 20-day moving average line currently is. That doubles its strength as a technical floor. That also doubles the bearish trouble should the floor break down as support.

Even so, the 100-day moving average line (gray) is still in palace at 4381.

With all of that being said, perhaps the chart of most interest right now is the Dow Jones Industrial Average's. While it's currently trapped between its 20-day and 50-day moving average lines as well, it's actually making a much more important -- and maybe much more telling -- pattern that goes all the way back to last August's peak. The dashed lines framing the index's highs and lows since then are a rising pennant or rising/bullish wedge pattern.

Like all wedge shapes on any chart, this one will continue to squeeze the blue-chip index into an ever-narrowing trading range... right up until it doesn't. They're worth watching all the same though, as the eventual moves outside of these wedge shapes can be explosive and prolonged.

In other words, they're trade-worthy. It'll be interesting to see how or if this one shapes up in that way and then leads to that result.

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