S&P 500 stocks broke out of a triangle pattern that was at least three weeks in the making today. And that’s good news if you’re a bear.
The index dropped below the 1215 support level for the first time since October 20, a strong indication that a bear market is about to set in. A triangle pattern is a technical term for when a price range in a given index narrows over a certain period of time due to progressively lower tops and higher bottoms, literally taking the shape of a triangle.
Technical analysts view a breakout of the triangle pattern as either bullish, on a breakout above the upper line, or bearish, on a breakout below the lower line. Contrary to the “super-bullish” breakout the Wall Street Journal predicted yesterday, today’s breakout – which occurred just before 1 :00 – went the other direction.
The S&P 500 is generally recognized as the leading indicator of how U.S. equities are performing. Now that it has dropped below its first support level at 1215, the bears could be out in full force. Wyatt Investment Research analyst Andy Crowder says the S&P won’t stop there.
“I think that 1175 is going to be the next level that it tests over the next six to eight weeks,” said Crowder, editor of Wyatt Research’s Options Advantage service.
And it won’t stop there, Crowder says. He thinks S&P stocks could push below the 1100 mark in 2012, perhaps as low as the 1020-1050 range. That’s a level the index hasn’t seen since September 2010.
S&P 500 stocks haven’t dipped below 1200 since October 11.