Double S&P 500 Sell Signal Warns of Even Lower Prices

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“S&P 500 Caps Worst Two-Day Drop Since June as Tech Slides” – Bloomberg
“Markets Face more Turbulence as Earnings Ramp Up” - CNBC
“2014 Crash Will be Worse Than 1987’s: Marc Faber” – CNBC

It’s been a while since investors have been confronted with such gloomy headlines.

Two indicators point towards more damage to come:

Seasonality

The March 30 Profit Radar Report featured an S&P 500 (^GSPC) seasonality chart (limited chart shows below) and proposed that: “The S&P 500 will rally to a new high in April (resistance is at 1,893), but stocks will sell off after their April high.”

Technical Analysis

  1. The March 30 and April 2 Profit Radar Report warned of a dense cluster of overhead resistance at 1,893 – 1,900 (see #1 on chart).
  2. The April 7 Profit Radar Report pointed out that: “The S&P triggered a MACD sell signal (#2). Today’s decline looks like an important building block for a multi-week or multi-month bearish structure.”
  3. The S&P 500 dropped below trend channel support (#3) going all the way back to the 2009 low (more info below).
  4. Although the S&P 500 (SPY) arrived at technical support at 1,815 – 1,810 (#4), which may cause a bounce, we are not yet seeing the kind of oversold readings indicative of a bottom (i.e. MACD is not decisively oversold).

View enlarged S&P 500 technical analysis chart here

View photo

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Summary

The S&P reversed at resistance, triggered a MACD sell signal and closed below support. Seasonality is bearish.

With or without bounce from support, further down side seems very likely. Prior support around 1,845+/- is now resistance.

Only a drop to the next support level or a rally above resistance may spark renewed buying.

How can you identify the kind of key support level destined to spark a rally? Here’s a quick interactive test designed to tickle investor minds (and spot key support/resistance levels).

How S&P 500 ‘Puppet Master’ Covertly Pulls Strings

Simon Maierhofer is the publisher of the Profit Radar Report. The Profit Radar Report presents complex market analysis (S&P 500, Dow Jones, gold, silver, euro and bonds) in an easy format. Technical analysis, sentiment indicators, seasonal patterns and common sense are all wrapped up into two or more easy-to-read weekly updates. All Profit Radar Report recommendations resulted in a 59.51% net gain in 2013.



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