A “broadening top” exhaustion pattern is building for the S&P 500, according to Robin Griffiths and Ron William at RW Advisory.
Griffith and William say this pattern, which is associated with late-cycle exhaustion, is characterised by massive disagreement between buyers and sells, leading to expanding volatility and higher highs and lower lows (see Chart). In the current case, they think the overhead resistance level at 4,000 will be a make-or-break level and failure to break above that level would set a target of 3,400 (the prior record set in February 2020), and then 3,000. They warn of a sharp downside acceleration of at least 28% below 2,890 and point out that the typically negative summer season may intensify the downside move.
Read the full report here, which includes:
The day of reckoning: The US budge deficit
Bond yield mean-reversion?
S&P 500 Minsky risk
The January Barometer
Best and Worst: India, UK