Weekend Analysis by Amateur Investors By: Amateur Investors | May 5, 2018
Once again the S&P 500 dropped back to its 200 Day MA (green line) this week and the buyers showed up on Friday. This is the 4th time since February that the S&P 500 has held support near its 200 Day MA.
Meanwhile I can only find one other occurrence, in the last 30 years, where the S&P 500 initially sold off from an all time high, but continued to bounce off its 200 Day MA over a period of a few months which was in 2000. In this case, the S&P 500 chopped around for several months while holding above its 200 Day MA, but never exceeded the peak that occurred in early 2000 (point A).
Eventually this choppy action was followed by a significant drop below the 200 Day MA (point B), which turned into a much larger correction through the Fall of 2002, as the S&P 500 lost 50% of its value from the early 2000 peak.
Meanwhile, moving back to the current situation, as you know the S&P 500 has been exhibiting a potential Triangle pattern. At this point I imagine you are sick of hearing about it. If we connect the trend lines, based on the exact highs and lows since January, the downward trend line is near the 2700 level while the upward trend line is around 2575.
However, if I adjust the trend lines just a tad, notice the Triangle is more defined and it appears we are getting close to seeing a breakout occur in one direction or the other. Thus the next few weeks look interesting depending on what happens around the 2700 level. Naturally if the S&P 500 rises above the 2700 level then that would favor an upside breakout. On the other hand, if the S&P 500 fails to rise above the 2700 level, then a sharp reversal may follow.
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