Chart Advisor: Classifying SPY’s Lower Lows
Stocks hit their yearly peak on July 27. Since then, they’ve pulled back, rallied, and pulled back again. And so far, each rally hasn’t been as high as the one before it. This is known as setting lower lows.
Typically, that kind of chart pattern is bearish. It suggests a further selloff in markets. Some traders also see a head-and-shoulders pattern. If that fully plays out, there could be more market pain in the coming weeks.
Investors can watch for a number of dangers. One of them is the high concentration of tech stocks. Currently, Apple (AAPL) represents 7 percent of the weight of the S&P 500 index due to its sheer size. Other big tech names also dominate the index.
Tech companies tend to have more volatility. So if there’s more downside volatility, it can weigh on markets more.
Besides Apple, another big trend this year has been semiconductor companies. The chipmakers have been big winners as the market has been interested in all things AI.
That trend has broken down as well. And it’s broken down after hitting its 2021 peak price. That suggests a potential double top. If that’s the case, semiconductor stocks have some downside in the months ahead.
Overall, this is shaping up to be a standard market correction. This time of year, such a pullback is natural. Investors looking at trading patterns should wait for the market to make a higher high on a rally before getting fully bullish again. But that will likely play out in the next few weeks.