Stock Market Long Term Chart Outlook

The stock market long term chart suggests support at 2800 and 2770, with “air” below to around 2700. The near buy signals in 3-4 year cycle indicators are faltering. A weekly close below 2800 with further weakening in these indicators could lead to severe weakness.

This report and chart are mostly excerpted from the May 28 Technical Trader Report at Lee Adler’s Liquidity Trader. New subscribers get a one month free trial if you sign up by 11:59 PM Pacific Time, Tuesday, May 28, and a 90 day risk free guarantee regardless of your start time.

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Back on May 5, I pointed out, “Don’t look now, but a huge megaphone, aka “broadening top” pattern is developing in the SPX. There’s also a shorter term wedge pattern… A failure to clear 3010, followed by a close below the lower line of the wedge would suggest a big intermediate correction, if not a major reversal.”

That’s exactly what happened. The S&P 500 (SPX) never approached 2000, and then it broke the wedge. Now it is testing critical support at 2800. An old resistance trendline is now at 2765. Break that, and bears should take control.

Stock Market Long Term Chart

If the stock market long term chart holds above those levels, we’d still be in a gray area. There has been a lot of ballyhoo about the 10 year bull market. But the market essentially hasn’t gone anywhere in 16 months. A broadening, or megaphone, pattern has developed over that time. Such patterns over extended periods are consistent with major market tops.

Negative Divergences in Stock Market Long Term Charts May Not Mean Much Until They Do

Long term trend indicators have been declining for 4 years. That shows waning long term momentum. Such negative divergences from the market averages obviously are not timing indicators for the long term.

But downturns from similar negative divergences on shorter term indicators often are. And a huge negative divergence has developed both in 3-4 year cycle indicators, and 10-12 month cycle indicators. The next downturn in those indicators are likely to be the signals for big losses in stock prices.

Failed Breakouts Often Signal Tops

A technical breakout occurs when the market goes through a previous high, or a significant trendline. That usually signals the continuation of a move. November 2016 is a perfect example.

But breakouts often fail. Such failed breakouts, which are sometimes called whipsaws, typically lead to major declines. The markt broke through a long term channel extension in  January 2018. It broke out again in September 2019. Both rallies fizzled, reversed, and fell back below the breakout areas. That lead to big declines.

The same thing happened again in recent weeks. The SPX broke through the 3 year cycle channel projection and immediately failed. That’s a huge red flag. The market is now on the verge of falling below another breakout point at 2800. If that happens, accompanied by a downturn in the 10-12 month cycle momentum indicator, Katy bar the door!

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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