It was a volatile first half of this year. The S&P 500 Index moved in a 12% range similar on a percentage basis to its opening range in 2016.
But while the price ranges were similar the direction of price movement was not. The monthly and daily charts show several dissimilarities between the opening halves of 2016 and 2018 and what they could mean for the market over the next six months.
In January 2016 the S&P index dropped sharply and then spent the next five months moving higher. It finished the first half of that year at the upper end of its six month range and formed a bullish hammer candle. The index went on to rally another 36% over the next 18 months.
The S&P rallied sharply in January of this year and then dropped in February to the low end of its six month range. It has moved off that low but is nowhere near the high end of its six month range.
In fact, just as the price action in January 2018 was the inverse of the price action in January 2016, the price action to finish out the month of June was too.
Instead of the bullish hammer candle that formed in June 2016, a bearish “gravestone-like” doji candle formed at the end of trading in June this year. A gravestone doji or inverse hammer is a candle with a long upper wick and a narrow opening and closing range, situated at the lower end of its overall range. It suggests an inability to hold higher levels and is considered a bearish reversal indication.
The S&P monthly chart also includes a long term uptrend line. Support is currently situated in the 2650 area. The long term trend remains intact until that trend line is breached, but at a minimum it looks like it will be retested.
Support and resistance levels on the weekly and daily timeframes are identical and are highlighted on the daily chart.
A triangle pattern formed in the first five months of trading on the S&P chart this year. It is defined by a series of lower highs above static horizontal support in the 2580 to 2560 area, around the 200 day moving average.
The index broke above the triangle downtrend line in May and has since made a series of higher highs and higher lows. It recently moved lower to retest the three month trend line just above the 200 day average, and those two key support levels now define an important zone of support.
The daily candle that formed in Friday’s session just above the 50 day moving average is also similar to the monthly candle, but it is not quite a gravestone doji. It does have a high upper wick but a wider opening and closing range situated at the bottom of the overall trading range. It resembles a shooting star candle and again, reflects an inability to hold its upper range.
Moving average convergence/divergence made a bearish crossover in June and the Chaikin money flow indicator crossed under its 21 period signal average.
The price action in the S&P 500 index in the first six months of 2018 is not as impressive as it was in the first half of 2016, but it is still very constructive. The long and short term bullish trends are likely to be retested but at this point in time, they remain intact.