The S&P 500 stays in a main uptrend, as confirmed by a reasonably constant sample of upper highs and better lows. However what would affirm {that a} prime is in place for our main fairness benchmarks? To reply that, it could be useful to overview different charts which have not too long ago skilled tops, because the technical configurations are sometimes fairly related.

Right now, we’ll overview the latest worth motion in Domino’s Pizza Group (DPZ), establish the important thing technical traits that outline its latest downswing, and relate that to what we might even see on the S&P 500 chart.

An Accumulation Section Happens When Patrons Outweigh Sellers

Earlier than we are able to affirm a bearish rotation on a chart like DPZ, we first want to obviously outline the uptrend part that occurs beforehand. This goes again to traditional Dow Principle, and in addition combines technical indicators like shifting averages to trace the upward tempo of worth motion.

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From the October 2023 low by the top of April 2024, Domino’s skilled a traditional Dow Principle uptrend shaped by a sample of upper highs and better lows. Every transfer increased exhibits that purchasing energy is overcoming any promoting stress that develops, and the upper lows present that dip patrons are thinking about accumulating shares on short-term weak spot. The worth remained above two upward-sloping shifting averages, and the RSI remained in a bullish vary, usually above the 40 degree.

The Guidelines to Determine a Distribution Section

Be aware how all of these components modified in Might and June. As a substitute of constructing one other new 52-week excessive in June, the worth stalled out at its earlier peak. As a substitute of reaching one other increased low on the following pullback, the worth broke under the Might swing low round $500. The RSI broke under 40 quickly after, indicating a fast deterioration in worth momentum.

So whereas this week’s hole decrease shocked many market practitioners, conscious traders would have acknowledged all of the traditional indicators of distribution earlier than this week’s sudden drop.

The Indicators to Look ahead to the S&P 500

How does this relate to the S&P 500 chart? For now, the SPY remains to be in a main uptrend of upper highs and better lows. The worth stays above two upward-sloping shifting averages, and the RSI remained above 40 even after Friday’s drop.

What would inform us that the S&P 500 has rotated to a distribution part?  Merely observe the playbook that DPZ displayed in latest months. Search for a failed try at a brand new excessive, which might recommend an exhaustion of patrons. Be aware if the next pullback is unable to carry the late June low round $540, which might imply that dip patrons are not prepared to purchase on short-term weak spot. And take note of the RSI, as a result of if it breaks under 40 on a pullback, that’s typically a predecessor of a lot weaker worth motion.

Nobody is aware of what’s going to occur subsequent for the S&P 500. However the excellent news is that we are able to overview the teachings of market historical past and see what constant patterns have occurred at earlier market subjects. As I used to be typically reminded in my early days within the trade, “Historical past does not repeat itself, however it typically rhymes!”

RR#6,

Dave

P.S. Able to improve your funding course of? Take a look at my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This weblog is for academic functions solely and shouldn’t be construed as monetary recommendation. The concepts and techniques ought to by no means be used with out first assessing your individual private and monetary scenario, or with out consulting a monetary skilled.

The creator doesn’t have a place in talked about securities on the time of publication. Any opinions expressed herein are solely these of the creator and don’t in any approach symbolize the views or opinions of another individual or entity.