13 Sep 2021, 10:28
In the past week, after the S&P 500 Index reached a new all-time high, the stock market went sideways. However, during the last 2 days of the week ending, things started to unravel. Investors were hoping for the market to flip up after the Biden-Xi call in an effort to cool down US-China relations. But, good news may not bring good stock price momentums. The S&P 500 Index went down again. This is hardly surprising from the technical chart perspective. The Index had hit the blue line resistance in the chart. Therefore, we had a good reason to be bearish last week.
What we see now on the chart is an ascending wedge forming on the S&P 500 denoted by the blue resistance and black support lines. As you can see, the space within this wedge is narrowing. Somehow, it has to break. In most cases, the ascending wedge breaks down. If this occurs, this would send the S&P 500 Index into a deep correction like at the end of 2018. Currently, the index is lying on the black support line. Hence, watch out for next week, as it is crucial to find out if the index would bounce up above this black line.
In case the worst-case scenario happens. In the worst-case scenario, as we had anticipated since the start of the year, if the correction is really deep, it could take the Index down to below the March 2020 low of the Black Swan Crash. This pattern occurred during previous Black Swan Crashes. However, do not need to panic. As long as we keep some of our hedges intact, and wait patiently for the stock market to bottom, we may be reaping the rewards in many years to come.
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