The S&P 500 recently touched a new all-time high in late August, but now analysts and traders are warning of a potential reversal. The technical pattern known as a ‘Head & Shoulders Top’ has been confirmed on the chart, which could indicate that a major sell-off may be on the horizon.
The Head & Shoulders Top pattern is one of the most reliable indicators of a market trend reversal, which occurs when there is an increase in selling pressure. In the S&P 500, it formed as the index rallied to new highs, made a lower high, and then fell again. This created three consecutive tops in the order of a head, left shoulder, and right shoulder, signaling a potential breakdown in the near future.
Along with the technical signals, some analysts are pointing to macroeconomic factors as an additional sign of an impending reversal. The US economic recovery has slowed significantly due to bouts of rising coronavirus cases, and potential rollbacks of stimulus measures. The growing number of jobless claims and weakening job growth is also a sign that the market is overvalued.
Overall, analysts and investors are warning that the S&P 500 is extremely vulnerable to a correction, as the combination of technical signals and macroeconomic pressures could indicate a major selloff is on the horizon. With the volatility in the markets, it is important to be aware of the potential risks and prepare for different scenarios.
