{"id":1812,"date":"2024-07-20T00:05:11","date_gmt":"2024-07-20T00:05:11","guid":{"rendered":"https:\/\/tradetrovex.com\/index.php\/2024\/07\/20\/what-does-a-market-top-look-like\/"},"modified":"2024-07-20T00:05:11","modified_gmt":"2024-07-20T00:05:11","slug":"what-does-a-market-top-look-like","status":"publish","type":"post","link":"https:\/\/tradetrovex.com\/index.php\/2024\/07\/20\/what-does-a-market-top-look-like\/","title":{"rendered":"What Does a Market Top Look Like?"},"content":{"rendered":"
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The S&P 500 remains in a primary uptrend, as confirmed by a fairly consistent pattern of higher highs and higher lows.\u00a0But what would confirm that a top is in place for our major equity benchmarks? To answer that,\u00a0it may be helpful to review other charts that have recently experienced tops, as the technical configurations are often quite similar.<\/p>\n

Today, we\u2019ll review the recent price action in Domino\u2019s Pizza Group (DPZ), identify the key technical characteristics that define its recent downswing, and relate that to what we may see on the S&P 500 chart.<\/p>\n

An Accumulation Phase Occurs When Buyers Outweigh Sellers<\/h2>\n

Before we can confirm a bearish rotation on a chart like DPZ, we first need to clearly define the uptrend phase that happens beforehand.\u00a0This goes back to classic Dow Theory, and also combines technical indicators like moving averages to track the upward pace of price action.<\/p>\n

After many months of underperformance, small caps are starting to thrive again. How should investors think about small cap stocks, what factors are contributing to this outperformance, and what does all this tells us about leadership rotation in the coming months? Join me for my next FREE webcast, <\/em>Small Caps, Big Dreams: The Great Rotation of 2024<\/em><\/a>, as we answer these questions and more! <\/em>Sign up today<\/em><\/a> and mark your calendar for Wednesday, July 24th at 1pm ET.<\/em><\/p>\n

From the October 2023 low through the end of April 2024, Domino\u2019s experienced a classic Dow Theory uptrend formed by a pattern of higher highs and higher lows.\u00a0Each move higher shows that buying power is overcoming any selling pressure that develops, and the higher lows show that dip buyers are interested in accumulating shares on short-term weakness.\u00a0The price remained above two upward-sloping moving averages, and the RSI remained in a bullish range, generally above the 40 level.<\/p>\n

The Checklist to Identify a Distribution Phase<\/h2>\n

Note how all of those factors changed in May and June.\u00a0Instead of making another new 52-week high in June, the price stalled out at its previous peak.\u00a0Instead of achieving another higher low on the next pullback, the price broke below the May swing low around $500.\u00a0The RSI broke below 40 soon after, indicating a rapid deterioration in price momentum.<\/p>\n

So while this week\u2019s gap lower surprised many market practitioners, mindful investors would have recognized all the classic signs of distribution before this week\u2019s sudden drop.<\/p>\n

The Signs to Watch for the S&P 500<\/h2>\n

How does this relate to the S&P 500 chart?\u00a0For now, the SPY is still in a primary uptrend of higher highs and higher lows.\u00a0The price remains above two upward-sloping moving averages, and the RSI remained above 40 even after Friday\u2019s drop.<\/p>\n<\/p>\n

What would tell us that the S&P 500 has rotated to a distribution phase? \u00a0Simply follow the playbook that DPZ displayed in recent months.\u00a0Look for a failed attempt at a new high, which would suggest an exhaustion of buyers.\u00a0Note if the subsequent pullback is unable to hold the late June low around $540, which would mean that dip buyers are no longer willing to buy on short-term weakness.\u00a0And pay attention to the RSI, because if it breaks below 40 on a pullback, that is often a predecessor of much weaker price action.<\/p>\n

No one knows what will happen next for the S&P 500.\u00a0But the good news is that we can review the lessons of market history and notice what consistent patterns have occurred at previous market topics.\u00a0As I was often reminded in my early days in the industry, \u201cHistory doesn\u2019t repeat itself, but it often rhymes!\u201d<\/p>\n

<\/div>\n

RR#6,<\/p>\n

Dave<\/p>\n

P.S.<\/strong> Ready to upgrade your investment process?\u00a0Check out my free behavioral investing course<\/a>!<\/span><\/p>\n

David Keller, CMT<\/strong><\/p>\n

Chief Market Strategist<\/p>\n

StockCharts.com<\/p>\n

Disclaimer: <\/em><\/strong>This blog is for educational purposes only and should not be construed as financial advice.\u00a0The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.<\/em><\/p>\n

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.<\/em><\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

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