Chart of the Day -Wednesday, March 18th, 2020

Today’s Chart of the Day was shared on Twitter by Macro Charts (@MacroCharts). It is a chart of the S&P 500 over the past month. Today, the index tested the infamous December 2018 low (red line). As you can see, price initially broke through that crucial level this morning but managed to close back above it.  Macro Charts suggests that this is a potential failed breakdown. A failed breakdown or “bear trap” occurs when price breaks support, fails to follow-through to the downside, and instead moves back above support. Failed breakdowns tend to lead to sharp moves higher. As we like to say, “out of failed moves, come fast moves in the opposite direction.” When price breaks an obvious support level like this, bulls get stopped out of their long positions and bears pile in short. When price does not continue lower and gets back above support instead, bulls chase to get back into their long positions, and bears are forced to buy to cover their shorts. Macro Charts emphasizes that we will need price to follow-through to the upside over the next few days to confirm this potential failed breakdown.