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S&P 500 Could Tank Another 14% As Wyckoff Distribution Pattern Is Unfolding

Cameron Murphy

Apr 25, 2022 10:17

Last week, the S&P 500 tried to reverse and rally above the resistance level at 4500, only to be met with a fake breakout on April 21, 2022, which was a Wyckoff change of character bar (which also occurred in gold and crude oil, as seen in the video) to begin the downswing.


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Structure Analysis of the Wyckoff Distribution Pattern for the S&P 500

After the upthrust after distribution (UTAD) event in early January 2022, followed by a fast selloff as a sign of weakness (SOW) in late January 2022, distribution in the S&P 500 has been expressed since the topping pattern created in November 2021. For the Wyckoff event, see the graphic below:


Since the COVID-19 low in March 2020, the indicator of weakness in the S&P 500 has acted as the greatest down wave, signaling a harm to the uptrend. The range bound situation between 4200-4600 was characterized by the selling climax low on January 24, 2022, and the automatic rally (AR), which was a technical rally generated following an oversold position.


Because of the indication of weakness as a consequence of the distribution structure in late last year, the directional bias for the possible trading range as it was folding was negative. Furthermore, as explained in the film, the stock market breadth also provides negative signals.


The strong rally that began in mid-March 2022 resulted in a Wyckoff upthrust (or false breakout), which was followed by an increase in supply in the down wave, indicating additional weakness for the S&P 500.


In the S&P 500, there is a bearish signal.


Before the strong selloff last Thursday and Friday, watch the video below to learn how to detect the bearish signal based on the Wyckoff upthrust and the bearish volume pattern.

Price Prediction for the S&P 500 Using a Point-and-Figure Chart

While the S&P 500 remains in a trading range of 4100-4600, the directional bias remains negative unless otherwise shown. The price objective for the S&P 500 is projected using a Point and Figure chart based on the likely distribution structure in the trading range as it unfolds, as seen below:


If the S&P 500 breaks below the support at 4100 set by the swing low in February 2022, and then fails to rise above 4280, a selloff might occur, with the lower goal being reached.


According to the point-and-figure chart prediction, there are enough reasons for the S&P 500 to hit 3650, a 14 percent loss. In 2020, this was also the prior support level when the accumulation structure emerged. If it happens, this may be the bottom that the bulls are looking for.


To defy this bearish scenario, the S&P 500 must reverse its downtrend and recover above 4400, 4500, before committing above 4600 and testing it with a small retreat. Otherwise, the S&P 500's directional bias remains to the negative.


Despite outperformance in crude oil and gold futures after the Wyckoff change of character bar appeared on April 21, 2022 in the S&P 500, prominent industrial groupings such as oil and gas, gold miners, commodities milling, agricultural chemical, coal, and others have witnessed a significant selloff.


This shows a slowdown, if not a complete reversal, among these main industrial groupings. Ultimately, despite the fact that the S&P 500 has only down 11% year to far, this is still a stealth bear market, with several equities already down 50-80%. Visit TradePrecise.com to get free stock market updates by email.

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