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There’s no denying that we’ve seen signs of distribution from key stocks like Apple, Inc. (AAPL) and Tesla (TSLA) breaking down to breadth conditions that have become less bullish by the week.

This week, we confirmed a head and shoulders topping pattern for the S&P 500, giving a bearish tone to the major equity averages going into next week. While the selloff into the end of this week was certainly related to the Fed meeting and Powell’s press conference on Wednesday, the signs of deterioration have been building for the last couple of weeks.

Today, we’ll break down the head and shoulders topping pattern on the $SPX chart, outline the three phases of price patterns in general, and identify some potential downside targets for the S&P 500.

The Head and Shoulders Pattern Defined

A number of technical analysis disciplines, from Elliott Wave to Dow Theory, use an analysis of highs and lows to define trends and identify potential reversals. Charles Dow’s basic definition was that an uptrend is comprised of higher highs and higher lows. Once that pattern is broken, then the uptrend may be in jeopardy.

Robert Edwards and John Magee, in their classic book Technical Analysis of Stock Trends (one of the most important books on our Recommended Reading List), described the head and shoulders top as an important pattern representing a “change of character” on the chart.

I like to think of the head and shoulders top as a failed attempt to make another new high. The uptrend phase keeps making higher highs and higher lows until, finally, there’s a failed attempt to push to a new price high. This often indicates an exhaustion of buyers or sellers beginning to unload shares into the market or both. For whatever reason, the price no longer fits the description of an uptrend.

I’ve found that novice technical analysts tend to label price patterns like the head and shoulders way too early before the pattern has been completed. This is why I’ve come to describe the three phases of price patterns. By waiting for these three steps, you can minimize false signals and whipsaws.

The Three Phases of Price Patterns

All price patterns can be broken down into three specific phases: the setup, the trigger, and the confirmation. Let’s review these three steps using an updated S&P 500 chart that includes the crucial neckline.

The setup is when the pattern starts to become recognizable. You can see the lower high (the right shoulder in a head and shoulders top); it sure looks like a head and shoulders pattern, and you’re ready to label it as such.

But you have to remember that until the price breaks the neckline of the pattern (dashed red line above), you can only label it as a “potential” head and shoulders pattern. The trigger is the point at which you can remove the “potential” label, and correctly identify the pattern as completed.

On the S&P 500, that meant we needed a break below the neckline which was around 4350. Then and only then can we identify likely downside targets based on the height of the pattern.

The final phase is the confirmation, which involves some further move in the direction of the breakdown. This is a crucial step, because I’ve often found that a chart will break below a key level of support, only to reverse course and move right back in the previous direction. This sort of whipsaw move can be frustrating for traders, as what appears to be a clear signal never materializes into anything further.

There are a couple of different ways to define the follow-through, but I tend to keep it very straightforward. I look for at least one more bar moving in the direction of the breakdown as a validation that the pattern has been completed.

We saw the initial breakdown of the pattern on Thursday, and then Friday’s session pushed even further down below the neckline. In my opinion, that is enough to declare this as a confirmed head and shoulders top for the S&P 500 index.

Downside Objectives for SPX

Now that we’ve confirmed a breakdown, what’s next for the major equity averages? We need to remember that short-term patterns yield short-term objectives, and long-term patterns yield long-term objectives. So while this breakdown seems like a climactically negative bear move for the SPX, it may just confirm that the current corrective move has a bit further to go.

The classic measurement technique for a head and shoulders pattern is to take the height of the pattern from the head to the neckline and then project a similar move down after the break.

This particular pattern consisted of about a 6% move from the July peak to the neckline, which means that a similar downside move would result in a minimum downside objective of around 4080. 

It’s worth noting that I’m using percentages here because I almost always use log scale charts, where the Y-axis is defined by percentages instead of dollar values. The other way to measure the downside objective is just to use the dollar values on an arithmetic scale. It’s about a 250-point range from the top of the head to the neckline, which would mean a downside objective of around 4100. 

It’s important to remember that these patterns do not occur in a vacuum! So other potential areas of support, including the 200-day moving average and major trendlines, are still very much in play. But one thing I’ve learned over the years is to follow the trend. And for now, the trend in the S&P 500 appears negative.

RR#6,

Dave

P.S. Ready to upgrade your investment process? Check out my free behavioral investing course!

David Keller, CMT

Chief Market Strategist

StockCharts.com

Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.

The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

First of all, my apologies for everybody who has been waiting for a Sector Spotlight this week. I traveled back from the US on Monday, got caught up in working on back-log stuff, and now it is Friday already 🙁

A new SSL will be recorded and posted on Monday! Sorry for the delay.

But here’s a quick take on sector movements over the past few days.

Daily Sector Rotation

The daily RRG for this week shows an apparent risk-off rotation with XLU, XLV, and XLP on strong RRG-Headings moving into or toward the leading quadrant.

On the opposite side, it is primarily XLK moving into the lagging quadrant while XLY and XLE are still inside, leading but rolling over and losing relative momentum.

With the S&P 500 down almost three percent, it is a bad week for the markets.

Looking at the daily chart of SPY, I see two possible scenarios.

Completed Head & Shoulders Top, or Market Finding Support?

The first is a completed H&S (like) formation triggered yesterday when the neckline broke with a downward gap. Measuring the top of the formation to the neckline and projecting that distance downward from the breaking level puts the target for the pattern around 405-410 in SPY.

Upside potential will be limited to the level of the neckline. Former support returning as resistance and/or the gap area between 435 and 440.

The second scenario could be that SPY is currently trying to find support at the level of the August 2022 high, and possibly starting to form a new low against that support level.

I am leaning more toward the second scenario, where SPY is trying to find support and possibly looking for renewed upside movement from current levels. This is primarily based on the sector rotation as it is still playing out on the weekly RRG.

XLC, XLY, and XLK are still inside the weakening quadrant and leveling off in terms of relative momentum, potentially setting the tails up for a rotation back up towards leading and resuming their relative uptrends against SPY.

The defensive sectors, XLP, XLV, and XLU, are all inside the improving quadrant, showing short tails and potentially rolling over to start moving lower, back towards the lagging quadrant.

430 Holds The Key

In either case, the area around 430 is crucial for the development in SPY in the coming week(s). If it holds, the market can get more constructive again and seek higher levels.

A clear break lower will confirm the first (H&S) scenario and its possible target area and negate the second scenario simultaneously. From a sector rotation perspective, the moves that I will be watching next week are:

When the daily tails for XLY, XLV, and XLP start to roll over, and XLY, XLK, and XLC pick up strength again, that would support scenario 2. This should be followed by a further rotation towards the leading quadrant on the weekly RRG for XLY, XLK, and XLC shortly after, and the defensive sectors rolling over while they are still inside the improving quadrant.

A continued strength for the group of defensive sectors in the coming week, possibly combined with SPY challenging 430, will be seen as a very strong sign of scenario one starting to play out. In the case of SPY breaking below 430, the first meaningful support level is found just below 420 in the area of the Jan 2023 peak.

#StayAlert and have a great weekend, –Julius

In this edition of the GoNoGo Charts show, with rates gapping higher and breaking above resistance, Alex and Tyler walk through the macro charts that can have an impact on markets. After discussing rates, they look at the dollar, which also is in a strong “Go” trend.

This video originally premiered on September 22, 2023. Click this link to watch on YouTube.

Learn more about the GoNoGo ACP plug-in with the FREE starter plug-in or the full featured plug-in pack.

Starbucks has been ordered by a federal judge to face a lawsuit claiming that some of its Refresher fruit drinks lack, well, fruit.

U.S. District Judge John Cronan rejected Starbucks’ request to dismiss nine of the 11 claims in the class-action complaint because “a significant portion of reasonable consumers” would assume that the beverages in question would contain the fruit in their names.

Starbucks calls the allegations “inaccurate” and “without merit.”

In August 2022, the complaint was filed in the United States District Court of the Southern District of New York, alleging Starbucks engaged in false and deceptive practices in the marketing and sale of a number of its Refresher drinks.

These drinks are: Mango Dragonfruit Lemonade Starbucks Refreshers and Mango Dragonfruit Starbucks Refreshers, which plaintiffs allege are missing mango; Strawberry Açaí Lemonade Starbucks Refreshers and Strawberry Açaí Starbucks Refreshers, which plantiffs allege don’t include açaí berry; and Pineapple Passionfruit Lemonade Starbucks Refreshers and Pineapple Passionfruit Starbucks Refreshers, which plaintiffs allege don’t contain passion fruit.

Based on this advertising, plaintiffs Joan Kominis, of Astoria, New York, and Jason McAllister, of Fairfield, California, allege that “reasonable consumers” bought the drinks under the assumption that they contained “all the fruits clearly listed in their respective names,” reads the judge’s opinion, “yet the Products are each missing either mango, passion fruit, or açaí.”

The plaintiffs said the main ingredients in these drinks were water, grape juice concentrate and sugar, and that the beverages “differ from other Starbucks products” in that the drinks don’t actually contain the items in their names, according to the opinion.

“Starbucks’ hot chocolate contains cocoa, its matcha lattes contain matcha, and its honey mint tea contains honey and mint,” reads the complaint, adding that the six drinks do in fact contain freeze-dried pieces of strawberries, pineapple and dragon fruit, but that Starbucks “does not affirmatively indicate anywhere which ingredients are and are not in the Products.”

Kominis said that she and other consumers bought these menu items and “paid a premium price” based on Starbucks’ naming of them, and would either not have purchased them or “paid significantly less for them” had they been aware they were missing one of the named fruits.

“The allegations in the complaint are inaccurate and without merit,” a Starbucks spokesperson tells TODAY.com. “We look forward to defending ourselves against these claims.”

Starbucks argued that the fruits mentioned in the names of the Refreshers were intended to “describe the flavors as opposed to the ingredients” of the drinks, but Judge Cronan rejected this argument, stating that, “in contrast with the use of the term ‘vanilla,’ which has been the subject of several prior cases, nothing before the Court indicates that ‘mango,’ ‘passionfruit,’ and ‘açaí’ are terms that typically are understood to represent a flavor without also representing that ingredient.”

Judge Cronan granted the motion to dismiss two allegations with prejudice, finding the plaintiffs failed to provide sufficient evidence that Starbucks intentionally defrauded consumers, as well as an unjust enrichment claim, and allowed the other nine to move forward to trial.

Robert Abiri, the laywer for the plaintiffs, tells TODAY.com they’re “very pleased with the outcome” and “hoping to get to a point of reaching class certification.”

The plaintiffs are seeking damages in excess of $5 million.

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The Democratic primary for a special election in South Carolina’s vacant Senate seat is locked in a tight race, with a minimal number of votes separating the candidates.After counting all the regular ballots on Wednesday, state Representative Deon Tedder held an 11-vote lead over state Representative Wendell Gillard, out of the 4,173 votes cast in the runoff.The race is highly likely to proceed to a recount since state law mandates it when the margin is within 1 percentage point.

The Democratic nominee for a special election for an open South Carolina Senate seat appears to have come down to a handful of votes.

With all the regular ballots counted Wednesday, state Rep. Deon Tedder led state Rep. Wendell Gillard by 11 votes out of the 4,173 cast in the runoff, according to the South Carolina Election Commission’s results.

The Charleston County Election Commission will decide the fate of 10 provisional ballots later this week and two outstanding overseas military ballots haven’t been returned and face a Wednesday night deadline, county Elections Director Isaac Cramer told The Post and Courier.

The race will almost certainly go to a recount. State law requires it when the margin is within 1 percentage point.

The Senate seat is open because Democratic Sen. Marlon Kimpson resigned after 10 years in office to take a job developing trade policy with President Joe Biden’s administration.

MISSING F-35 JET WAS ‘ALMOST GOING INVERTED’ BEFORE CRASH, WITNESS SAYS
Gillard, 69, won the three-way primary two weeks ago with 47% of the vote. But South Carolina requires a majority to win the nomination. Tedder won 39% in the primary, while state Rep. JA Moore received 15%.

The winner faces Republican Rosa Kay in Nov. 7 general election. The district is heavily Democratic, running from the Charleston peninsula into North Charleston.

If elected Tedder, 33, would be the youngest member of the state Senate. Kimpson endorsed the attorney and two-term state House member along with several other prominent Charleston area Democrats.

Tedder also got the endorsement of U.S. Rep. Jim Clyburn, the most prominent Democrat in the state.

That rankled Gillard, who said if he loses once results are finalized, he might challenge Clyburn in 2024 if the 83-year-old runs for a 17th term.

‘He gets an attitude if you’re not kissing his ring. I ain’t kissing no ring. I’m not ever going to do that in politics,’ Gilliard told the Charleston newspaper.

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FIRST ON FOX: The Republican National Committee will raise polling and donor thresholds 2024 primary candidates must reach to make the stage at the third GOP presidential nomination debate, Fox News Digital has learned.

To participate in the third debate, each candidate must have a minimum of 70,000 unique donors to their campaign or exploratory committee, including 200 donors in 20 or more states. The RNC’s debate committee decided on the thresholds during a conference call on Thursday, according to sources with knowledge of the panel’s deliberations. 

The White House hopefuls must also reach 4% support in two national polls, or reach 4% in one national poll and 4% in two statewide polls conducted in Iowa, New Hampshire, Nevada or South Carolina — the four states that lead off the Republican presidential nominating calendar.

Additionally, candidates are also required to sign a pledge in which they agree to support the eventual Republican presidential nominee. They must agree not to participate in any non-RNC sanctioned debates for the rest of the 2024 election cycle and agree to data-sharing with the national party committee.

The thresholds have been rising for each ensuing debate. To make the first showdown, a Fox News-hosted event in Milwaukee on Aug. 23, the candidates needed to hit 1% in polling and have 40,000 donors. Eight candidates ended up facing off in Milwaukee.

The criteria were raised to 3% in the polls and 50,000 donors for next week’s second debate, a FOX Business-hosted showdown taking place Tuesday at the Ronald Reagan Presidential Library and Museum in Simi Valley, California.

So far, according to a Fox News count, six of the eight candidates who took part in last month’s first GOP presidential nomination debate have already reached the RNC’s criteria.

They are — in alphabetical order — former New Jersey Gov. Chris Christie, Florida Gov. Ron DeSantis, former ambassador and former South Carolina Gov. Nikki Haley, former Vice President Mike Pence, biotech entrepreneur and political commentator Vivek Ramaswamy, and Sen. Tim Scott of South Carolina.

North Dakota Gov. Doug Burgum and former Arkansas Gov. Asa Hutchinson, who qualified for the first debate, have yet to reach the second showdown’s thresholds.

Former President Donald Trump, who has reached the donor and polling thresholds, did not sign the RNC’s pledge. Pointing to his large lead over his rivals for the nomination, he did not attend the first debate and has already made alternate plans for next week’s showdown.

Get the latest updates from the 2024 campaign trail, exclusive interviews and more at our Fox News Digital election hub.

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FIRST ON FOX – The Republican National Committee is warning New Hampshire not to move up the date of their first-in-the-nation presidential primary.

The RNC’s debate committee decided — in consultation with RNC chairwoman Ronna McDaniel — during a Thursday conference call to issue a warning that it will pull a planned GOP presidential primary debate in New Hampshire if the state leapfrogs Iowa caucuses and moves to the top of the party’s nominating calendar. Sources with knowledge of the call shared the decision with Fox News Digital. 

Republican Gov. Chris Sununu of New Hampshire, in an exclusive statement to Fox News a couple of hours later, responded to the RNC.

‘The first presidential primary will be taking place in New Hampshire, regardless of what the political power brokers in Washington, DC think,’ Sununu wrote. ‘We will not be threatened, we will follow our law, and we WILL go first. End of story.’ 

New Hampshire for a century has held the first primary in the race for the White House, and for the past half century has gone second in both the Democratic and Republican nominating calendars, following Iowa’s caucuses.

While the Republican National Committee is not making any dramatic changes to their nominating calendar, the rival Democratic National Committee overwhelmingly voted in early February to dramatically alter the top of its schedule for the 2024 election cycle, bumping Iowa and New Hampshire from their longtime leadoff positions.

According to a nominating calendar proposed by President Biden and approved by the DNC, South Carolina will hold the Democrats’ first primary, on Feb. 3, followed three days later by New Hampshire and Nevada.

But New Hampshire has a nearly half-century-old law that mandates that it hold the first presidential primary, a week ahead of any similar contest. And it’s likely the state will hold its primary on Jan. 23, eight days after Iowa’s caucuses, which are scheduled for Jan. 15. While that would put New Hampshire in non-compliance with the Democrats, it wouldn’t affect the GOP primary.

But Iowa Democrats — who last week voted to also hold their caucuses along with the Republicans on Jan. 15 — are considering complementing their traditional caucus with a mail-in component, which New Hampshire Secretary of State Dave Scanlan warns may make the Iowa Democratic caucuses too similar to a primary, violating the Granite State’s law. The possible move by Iowa Democrats would also violate a new Hawkeye State law that mandates that the caucuses be held in person.

Iowa GOP chair Jeff Kaufmann recently charged in a radio interview that Scanlan was being ‘over-rambunctious’ in potentially moving up the date of the primary. Scanlan returned fire last week, telling reporters that ‘we’re going to take a pretty hard line on any effort to make a traditional caucus look more like a presidential primary.’

The RNC is planning on holding debates in all four of its early voting presidential primary and caucus states — Iowa, New Hampshire, Nevada, and South Carolina — ahead of their contests.

But the RNC is now warning New Hampshire that a jump to the top of the calendar ahead of Iowa would result in the state’s debate being pulled by the national party committee.

Sununu, who’s been very vocal in criticizing the DNC’s push to move New Hampshire from the top primary position, on Thursday evening fired back at the RNC over their possible pulling of their debate.

‘New Hampshire gives every candidate an even playing field and can catapult candidates to the presidency. Threatening to take a debate away from New Hampshire is a disservice to every campaign and candidate that has worked tirelessly to earn the votes of New Hampshire’s Republican electorate,’ Sununu worte in his statement to Fox News.

And Scanlan also dismissed the RNC warning, saying it would not enter his decision-making process. Asked by the NH Journal if it would impact the date of the primary, New Hampshire’s Secretary of State answered,’In a word, ‘no.’’

Get the latest updates from the 2024 campaign trail, exclusive interviews and more at our Fox News Digital election hub.

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FIRST ON FOX: Sen. Mike Braun, R-Ind., and fourteen other GOP leaders introduced a bill Thursday to prevent the White House from declaring gun violence a national health emergency to enact gun control measures.

The bill, known as the Protecting the Right to Keep and Bear Arms Act of 2023, comes as Democratic New Mexico Gov. Michelle Lujan Grisham last week tried to enact an immediate 30-day prohibition on carrying guns in public areas or on state-owned properties in Albuquerque, calling gun violence a public health crisis.

‘Many said that public health emergencies would not be abused to impose gun control, but after we saw the vast expansion of executive power during COVID and the New Mexico governor use a public health emergency to effectively suspend the Second Amendment in her state, no one can doubt that this needs to be addressed,’ Braun said in a statement.

‘We need to set into law that no one can remove the right to defend ourselves and our families with the stroke of a pen.’

The legislation is likely to gain steam in the GOP-led House. U.S. Rep. Michael Cloud also introduced a bill this week with the same name in response to Grisham’s measure. Rep. Pete Sessions, R-Texas, and Rep. Mary Miller, R-Ill., cosponsored Cloud’s bill and joined the choir of criticisms of Grisham’s move to ban guns. 

A judge blocked Lujan Grisham’s 30-day gun ban on open and concealed weapons, leading the governor to amend the rule to restrict guns at public parks or playgrounds, ‘where we know we have high risk of kids and families,’ she said, according to ABC.

Lujan Grisham said in a statement she refuses ‘to be resigned to the status quo.’

‘Today a judge temporarily blocked sections of our public health order but recognized the significant problem of gun violence in this state, particularly involving the deaths of children,’ she wrote. ‘As governor, I see the pain of families who lost their loved ones to gun violence every single day, and I will never stop fighting to prevent other families from enduring these tragedies.’

In May, Health and Human Services Secretary Xavier Becerra labeled gun violence a ‘public health crisis’ after a mass shooting at an Atlanta medical office building. Earlier, California officials had written a letter urging Becerra to formally recognize it as a public health emergency.

Braun previously introduced the bill in 2021 and as an amendment in July of this year. 

The bill is co-sponsored by GOP senators Thom Tillis of North Carolina, Kevin Cramer of North Dakota, Jim Risch of Idaho, Mike Crapo of Idaho, Cynthia Lummis of Wyoming, Joni Ernst of Iowa, Cindy Hyde-Smith of Mississippi, John Hoeven of North Dakota, Steve Daines of Montana, Ted Budd of North Carolina, Roger Wicker of Mississippi, Rick Scott of Florida, Tom Cotton of Arkansas and Josh Hawley of Missouri.

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The Biden administration on Thursday announced plans to remove medical bills from Americans’ credit reports in a push to end what it called coercive debt collection tactics that affect millions of consumers.

Vice President Kamala Harris told reporters that more than 100 million Americans had unpaid medical debt.

‘Many of the debts people have accrued are due to medical emergencies,’ she said. ‘We know credit scores determine whether a person can have economic health and wellbeing, much less the ability to grow their wealth.’

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Abraham Lincoln is responsible for one of the boldest and most far-reaching uses of executive powers in American history by his announcement that enslaved people would soon be ‘forever free’ on this day in history, Sept. 22, 1862. 

Dubbed by historians the ‘preliminary’ Emancipation Proclamation, Lincoln’s announcement noted that slavery would end in the United States on Jan. 1, 1863 — the date his proclamation would take effect. 

He made the announcement to the nation as the Civil War dragged through its second year. It had grown much deadlier than almost anyone had anticipated. 

‘All persons held as slaves within any State or designated part of a State, the people whereof shall then be in rebellion against the United States, shall be then, thenceforward, and forever free,’ Lincoln announced.

The ‘Great Emancipator’ claimed controversial war powers in making the proclamation. 

Lincoln was given the political capital to make the stirring announcement following Union victory in the Battle of Antietam in Maryland just five days earlier.

The bloodshed was shocking, the National Park Services reports, noting that ‘23,000 men had been killed, wounded or listed as missing, the single bloodiest day in the history of the United States. [Confederate General Robert E.] Lee’s first invasion of the North ended as he retreated back into Virginia on the night of September 18.’

The battlefield boost for Lincoln came after the federal army had been outwitted, outmaneuvered and outfought in almost every battle of the first year of the Civil War. 

‘Antietam … showed that the Union could stand against the Confederate army in the Eastern theater,’ writes the American Battlefield Trust.

‘It also gave President Abraham Lincoln the confidence to issue the preliminary Emancipation Proclamation at a moment of strength rather than desperation.’

Lincoln had tried to cajole Congress into making steps to emancipate the nation’s people who lived in bondage.

‘Finally, in the summer of 1862, he shifted the basis for an emancipation strategy to his presumed constitutional ‘war powers’ as commander-in-chief, presenting a draft emancipation proclamation to his cabinet in July,’ writes the National Constitution Center.

‘Although there was no consensus on the existence of such ‘war powers,’ Lincoln issued a preliminary emancipation proclamation on September 22, 1862, and then released a final Emancipation Proclamation on January 1, 1863.’

Lincoln commanded in his announcement: ‘I do hereby enjoin upon and order all persons engaged in the military and naval service of the United States to observe, obey, and enforce, within their respective spheres of service, the act, and sections above recited [the pending emancipation of the slaves].’

‘Emancipation would redefine the Civil War, turning it from a struggle to preserve the Union to one focused on ending slavery, and set a decisive course for how the nation would be reshaped after that historic conflict,’ writes History.com. 

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