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Upside momentum slowing
While it was another all-time high (ATH) for the S&P 500 last week, reaching 5,189, upside momentum is beginning to slow and concluded the week tentatively. The Dow Jones Industrial Average also ended a second week in negative territory and the Nasdaq 100 and Nasdaq Composite finished off ATHs in the shape of weekly bearish harami candlestick patterns.
Dip-buyers watching the S&P 500 this week
Although buyers are still dominating the equity market, signs of weakness are beginning to emerge in the S&P 500.
From the weekly timeframe, buyers and sellers wrapped up last week even, consequently delivering an indecisive candlestick formation. Traders will be aware that following a meaningful uptrend, an indecision candle can signal a possible reversal to the downside (in this case, a downside move is strengthened by the possibility of negative divergence out of the Relative Strength Index [RSI] on the monthly timeframe and an extreme overbought signal on the weekly timeframe). Should sellers make a show, the 5,000 level and channel resistance-turned-potential support (taken from the high of 4,607) could welcome price action this week.
In addition to the weekly timeframe’s indecision candle delivering a potentially bearish tone for the week, we can see that price action on the daily timeframe also finished Friday in the form of a bearish engulfing pattern. What’s interesting is that assuming sellers do make a show this week, the daily timeframe’s Fibonacci retracement ratios between 4,976 and 4.994 add additional support to the 5,000 level.
Therefore, if a correction unfolds and we test the 5,000 region this week, dip buyers seeking entry into the current uptrend will have a support zone to work with between 4,976 and 5,000, bolstered by potential weekly channel support.
