The Federal Reserve can trigger this large stock sales signal
Wall Street's bears may be ready to return from their hibernation in September and devour the bulls whenever they want if tech stock strategists are right.
The S&P 500 is approaching the often dreaded "double-up" table after defying conventional wisdom on the US-China trade war this month and climbing back to record highs. The S&P 500 index is 3.007 as of Friday, and is a stone's throw from the record high of 3,027 hits on July 26.
A technical double chart chart analysis is seen as a bearish reversal pattern. It is characterized as two consecutive peaks (in this case July 26 and the one approaching) that are almost identical, with a decent sized trough in the middle (late July to late August here).
Should the S&P 500 fail to convincingly ride its final momentum beyond the July 26 highs on a closing basis, the pros will likely see it as buying appetite after going short term. Without another dose of positive news on the trade war front, or from prior quarterly earnings announcements, investors could have a valid reason to dump stocks before fresh tariffs come into effect in mid-October.
Miller Tobacco strategist Matt Maley points to the significant double-top formation on the S&P 500 in 2000, 2007, 2011 and 2015, all followed by significant market corrections.
"Double peaks are very important in technical analysis … and even if they don't It often happens, they are usually very compelling," says Maley.
Those looking for the catalyst for a double peak, bearish reversal, should look straight at the Federal Reserve.
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It is widely expected that on September 18, the Federal Reserve will have cut interest rates by another 25 basis points. play of recent lucrative readership on industry, a declining labor market in the US and ongoing trade risk as a basis for the interest rate cut.
But the wildcard of the day according to those on Wall Street will be the Fed's updated dot plot. The dot plot is used to signal where they in the Fed see interest rates which is on the way in future years.
When that regarding this meeting, it is unclear if enough Fed members will plan a path for lower interest rates. If this happens, it could be the signal for the bears to come back – remember that the market's algae loves to cut interest rates perhaps more than President Donald Trump.
Federal Reserve Leader Jerome Powell presents Monetary Policy Report to Senate Banking Committee, July 11, 2019, on Capitol Hill in Washington. (AP Photo / Jacquelyn Martin)
“We expect the dot plot to show further movement down the dots, if nothing else to reflect the interest rate cut in July. But the average can't move strong enough to meet market expectations, and the media is unlikely to show another 50 basis points in cuts by the end of the year, says Morgan Stanley economist Ellen Zentner.
Goldman Sachs is also not convinced that the Fed's dot plot will be of the extra virtuous variety the markets want.
Notes Goldman Sachs strategist Jan Hatzius, “We expect the bullet plot to show that a significant minority, about six participants likely including the chairman and vice president, Chairman, expect a third cut later this year. We believe such an outcome would give a strong signal of a third cut and would not be taken as particularly hawkish by investors, although the median tipping would not show further relief. ”
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Technical stock analysis is not hocus-pocus. Studying key chart formations is a great way to measure sentiment in the market and if it signals potential bullish or bearish moves.
In this last case you have to respect the double app, especially after the rather against the grain rally we have seen in stocks this month. Stock prices are currently reflecting increasing hopes for trade negotiations with China, even though they have not changed much at all. The markets are also continuing to bake at a steady rate of interest rate cuts by the Fed.
The collective optimism could easily be beaten by investors with a Trump tweet … or one less than dovish Fed meeting.
<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = " Brian Sozzi is editor and co-anchor to The First Trade at Yahoo Finance Follow him on Twitter @BrianSozzi "data-reactid =" 53 "> Brian Sozzi is the editor and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi
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