The S&P 500 is following a similar pathway to 2008 and this suggests it could rollover and re-test the lows soon, according to George Davis, Chief Technical Strategist at RBC Capital Markets.
Davis highlights three Charts that show how the S&P 500 is at a critical zone.
Chart 1 illustrates the similarity between current SPX price action (red line) and price action in 2008 (blue bars). If this analog remains in play, Davis thinks prices could roll over and re-test the lows.
Davis says the 50 to 61.8% retracement zone between 2793 and 2934 may begin to stall the corrective rally. A daily close below trendline support at 2697 – his “line in the sand” – would end the corrective rally and lead Davis to lower his price target, with the resulting bearish trend reversal favouring a re-test of support at 2641 and 2447
A critical long-term support zone exists between 2363 and 2610. Davis notes how the Ichimoku Cloud contained the recent 35% plunge in stocks to preserve the long-term trend. He says to watch this region very closely as a break below it would open up the congestion area from 2015-2016 next. A move below 40 on the monthly RSI study would be indicative of bearish sentiment.