Stock market’s May selloff to mark ‘key’ monthly reversal that ‘presages deeper declines’

May is going to leave a mark.

Heavy losses on Friday appeared set to ensure the S&P 500 will suffer a black eye on the monthly chart, leaving the benchmark index on track to log a “bearish key reversal.” That’s illustrated in the candlestick chart below, from a Thursday note by George Davis, chief technical strategist at RBC Capital Markets:

Key reversals are chart patterns that mark trend changes at extremes. A bearish pattern, which sees stocks close at a high in one period, extend that rise in the following period but then retreat to close below the previous period’s low.

Read: 7 key candlestick reversal patterns

To prevent the pattern, the S&P 500 SPX, -1.10%  must close above the April low of 2,848 on Friday. That would require a monumental intraday reversal of its own, with stocks down sharply Friday following President Donald Trump’s threat to put escalating tariffs on all Mexican imports — a move that heightened worries over the outlook for economic growth and rattled global financial markets.

Need to Know: Stocks to fall 15% to December meltdown levels, this chart predicts

The S&P 500 was off its session low but still down 0.9% Friday at 2,762.63, while the Dow Jones Industrial Average DJIA, -1.11%  was off 250 points, or 1%. The S&P was on track for a 6.2% loss, while the Dow was down 6.3%. That would be the first monthly loss of 2019 and the steepest May decline for both gauges since 2010. The monthly fall, however, remains smaller than the more-than-9% decline suffered by the S&P 500 in December.

Read: Here’s the damage done to the stock market since Trump’s May 5 trade tweet

The likely monthly reversal “presages deeper price declines” and warrants the “maintenance of a defensive posture,” Davis wrote. In

Read More Here...

Bookmark the permalink.