Is The S&P500 Setting Up For a Break To New Highs?

Is The S&P500 Setting Up For a Break To New Highs?

After dipping to 4500, the development of a potential inverted Head & Shoulders pattern started to take shape on the price chart of the S&P 500.

The overhead resistance just above 4700 has already been developing since the market first reached that area at the start of November. Very recently this level was once again established as overhead resistance when the market failed again to break higher and put in a peak at 4713.

Yesterday’s rally stopped just short of 4710, once again challenging that resistance barrier.

However, the pattern that developed below that resistance area since the first test in November took the shape of an inverted H&S formation. Most occurrences for this type of pattern signal a trend reversal (from down to up).

Given the location and the size of the formation in combination with the uptrend still being in play, I think this qualifies as an H&S continuation pattern, which occurs much less frequently.

In order to trigger a completed formation, we need to see a close above the neckline, let’s say 4715. When that happens we can calculate a potential target for a new rally around 4900. The “height” of the formation is measured from the lowest point to the neckline which is roughly 200 points. These 200 points may then be projected upward from the level of the breakout which comes out around 4900.

So in the coming days: All eyes on a close above 4715!

–Julius

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Julius de Kempenaer
Senior Technical Analyst, StockCharts.com
CreatorRelative Rotation Graphs
FounderRRG Research
Host ofSector Spotlight

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Julius de Kempenaer

About the author:
is the creator of Relative Rotation Graphs™. This unique method to visualize relative strength within a universe of securities was first launched on Bloomberg professional services terminals in January of 2011 and was released on StockCharts.com in July of 2014.

After graduating from the Dutch Royal Military Academy, Julius served in the Dutch Air Force in multiple officer ranks. He retired from the military as a captain in 1990 to enter the financial industry as a portfolio manager for Equity & Law (now part of AXA Investment Managers).
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