Sharp losses on the final trading day of May 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.
To prevent the pattern, the S&P 500 SPX, -0.89% 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.
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, -0.94% 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.
The likely monthly reversal “presages deeper price declines” and warrants the “maintenance of a defensive posture,” Davis wrote. In the