Dow Jones
The S&P500 broke a rising wedge pattern that started last November when the news came out that vaccines against the COVID-19 virus are efficient. The move higher extended over 1,000 points. While this was great news for equity market bulls, the rising wedge spells trouble.
It is often the case that the price action following a rising wedge is retracing minimum half of the wedge’s distance. Hence, we should not discount the S&P500 index dropping below 3,600.
The inflation data in the US showed a significant rise for the month of April. The headline inflation came out four times higher than the expectations, triggering fears that the Fed is well behind the curve.
As such, investors rushed into buying the US dollar, the world’s reserve currency, and a store of value. Risk on movements, such as higher equity market prices, were quickly reversed by sharp sell-off.
Pressure on the stock market will likely increase. Some tech funds, like ARKK, run by the famous Cathie Wood, is under pressure as redemptions mount.
Bears may want to stay on the short side as the price broke below the lower edge of the pattern. The risk management calls for a stop-loss order at the highs, just above 4,210 points, and a take profit at 3,600, for an appropriate risk-reward ratio.
Follow Mircea on Twitter.
