The US stock market stalled early this week as earnings started to hit. A number of news and other items are pending with earnings just starting to roll in. There have been some big numbers posted from JP Morgan and Goldman Sachs. Yet, the markets have reacted rather muted to these blowout revenues.
We believe this is a technical “Double Top” set up in the making. The NASDAQ has been much weaker than the S&P and the Dow Industrials. We believe the US stock market is reacting to the reality of earnings and forward guidance after the recent rally in price levels over the past 9+ weeks. If we are correct and this Double-Top pushes price levels lower, then this technical resistance level may become the price ceiling headed into Q3 and Q4 2020.
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E-mini S&P 500, Weekly chart
his ES, E-mini S&P, Weekly chart highlights the technical Double Top pattern that we believe will become a major price ceiling as earnings and other economic data continues to be released. This is a perfect example of how technical patterns align with fundamental data to present very clear trading signals. If the resistance near 3220 holds as we expect, the ES price level should begin to move lower attempting to target the 3000 level.
SPY ETF Weekly Chart
This SPY ETF Weekly chart highlights the similar Double-Top pattern that has setup with further indicates strong resistance near $322 – which aligns with the original Fibonacci Bearish Trigger Level from the February peak levels (the solid RED line). The Double-Top setup near the Fibonacci Bearish Trigger level suggests a very strong resistance level that exists near $322. It is our opinion that this Double-Top setup near strong resistance will likely push the SPY into a downside price trend targeting $300 or lower.
Transportation Index Weekly Chart
This Transportation Index Weekly chart highlights a different type of resistance price pattern – a downward sloping price channel peak. Unlike a Double-Top pattern, when price creates unique high price peaks that align into a price channel, we can attempt to use this channel as a price resistance channel going forward. In this case, the peak price level in February 2020 and the peak price level in June 2020 creates a very clear downward price channel that matches the current price peak perfectly.
It is our opinion that this peak level will act as strong price resistance in the Transportation Index and should prompt a downside price trend targeting $8900 to $9000 or lower.
As global traders and investors continue to trade the forward expectations and earnings data that will last another 4+ weeks, we have to be prepared, as skilled technical traders, to trade any decent price moves that initiate as a result of price reacting to this technical resistance and moving lower. As technical traders, we will wait for confirmation of a trading signal before jumping into a trade from these levels. This makes a big difference in terms of accuracy. Once we receive a confirmation of the technical pattern, we believe the trade has a much higher accuracy ratio.
In closing, be prepared for bigger downside price trends as this technical resistance works through the markets. After the peak in June 2020 and the setup of this Double-Top pattern, our researcher team believes a downside price move from current levels is highly likely.
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Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.
NOTICE: Our free research does not constitute a trade recommendation or solicitation for our readers to take any action regarding this research. It is provided for educational purposes only. Our research team produces these research articles to share information with our followers/readers in an effort to try to keep you well informed.
