The S&P 500 component stocks are divided into eleven sectors, and five of them have rising wedges that have broken down. A rising wedge is a bearish formation, and, even in a bull market, it will resolve downward more often than not. In a bear market the odds of a negative resolution are even higher. The four sectors with rising wedge breakdowns this week are Consumer Staples (XLP), Health Care (XLV), Industrial (XLI), Technology (XLK), and Utilities (XLU). I wrote about XLK and XLU last week.
Consumer Staples: The wedge was pretty tight, but there was an overbought PMO and two short-term negative divergences, increasing the likelihood of a negative resolution.
Health Care: Here's another narrow wedge, and it tried to break upwards, but that effort reversed on Monday. Price broke down on Tuesday. Also, another overbought PMO.
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Industrial: Not as profound as the other examples in this article, but a wedge breakdown nonetheless.
Technology: Three negative divergences emphasize the technical erosion.
Utilities: The rising wedge itself was the only overt negative evidence preceding the April top.
CONCLUSION: Once a rising wedge breaks down, there is no certainty that price will continue to decline, but considering that the remaining six S&P 500 sectors are showing various manifestations of negative activity, not to mention the worst fundamental conditions I've ever seen, I think we should look for the March lows to be retested.
Note: Charts were made prior to today's close.
Technical Analysis is a windsock, not a crystal ball.
Helpful DecisionPoint Links:
DecisionPoint Alert Chart List
DecisionPoint Golden Cross/Silver Cross Index Chart List
DecisionPoint Sector Chart List
Price Momentum Oscillator (PMO)
Swenlin Trading Oscillators (STO-B and STO-V)
