Some regarding candle patterns for main know-how names have prompted me to give attention to potential draw back targets for the S & P 500 . As a result of if the mega cap progress shares begin to falter, it could possibly be a harmful summer time for our growth-dominated benchmarks. This week, we noticed bearish candle patterns for key know-how names, with Nvidia Corp (NVDA) and different semiconductors that includes the dreaded bearish engulfing sample. After an prolonged bullish run for these shares, this will point out at the very least a significant pause within the relentless uptrend. Right here we see confirmed bearish engulfing patterns for the VanEck Vectors Semiconductor ETF (SMH) , Nvidia, and Micron Expertise (MU) . This two-day sample signifies a possible short-term reversal, with an extended up day adopted instantly by an extended down day. Why is that this sample so highly effective? As a result of on day two, after opening increased, merchants are promoting power to rotate the inventory to a short-term distribution section. And by closing beneath the open of day one, the value confirms a possible bearish rotation in sentiment. To be clear, it is a short-term sample, and is basically simply supposed to tell our considering for the following couple buying and selling periods. However I’ve usually discovered that vital candle patterns occur at market extremes, because the short-term reversal results in additional deterioration as buyers get scared away from a probably broader and extra painful downturn. Given the bearish short-term indicators from some key management names, in addition to the overbought circumstances for our main benchmarks, I revisited some draw back targets for the S & P 500. To place it merely, what would we have to see by way of worth motion to substantiate a summer time market prime? When it comes to short-term reversal indicators, the current worth hole round S & P 5,400 is the primary “line within the sand” in my view. So long as the S & P stays above this degree, and likewise holds a trendline created by lining up the key lows since October 2023, then this market remains to be in a really bullish configuration. However what if the bearish candle patterns we have noticed are just the start, and we see additional weak point into subsequent week and past? A very powerful degree to look at is S & P 5,200, which might symbolize a few 5% pullback from the current market peak. 5 % pullbacks are literally fairly frequent, even in raging bull years in market historical past. If the S & P 500 had been to interrupt beneath 5200, that will imply not solely has it failed to carry the current worth hole, but it surely additionally has dropped beneath the 50-day shifting common in addition to the latest main low from the tip of Could. If 5,200 would fail to carry, then I’d contemplate the “level of no return” to be S & P 4,950. That degree relies on the April 2024 worth low, in addition to the 200-day shifting common. If we’d see sufficient of a downward pull that the 200-day would fail to carry, there could be a powerful chance of a deeper and extra protracted correction, and buyers would wish to strongly contemplate extra defensive positioning. A technique I like to visualise this form of framework is utilizing a “stoplight” approach, based mostly on these key “strains within the sand” for the S & P 500 index. How would I interpret worth motion round these ranges? If we stay above 5200, then this market remains to be very a lot able of power, regardless of any form of short-term worth distribution. A transfer beneath S & P 5200 would trigger me to revisit lengthy positions and begin to increase money on account of an elevated danger of a correction. If and when the S & P pushes beneath 4950, I’d be positioned far more defensively, ready for some indicators of accumulation to emerge. Throughout a bullish market section, it may be very snug to simply shut our eyes and hope for additional upside. However savvy buyers know that by clearly defining ranges of danger, they are often greatest ready for no matter lies forward. -David Keller, CMT marketmisbehavior.com DISCLOSURES: (None) All opinions expressed by the CNBC Professional contributors are solely their opinions and don’t replicate the opinions of CNBC, NBC UNIVERSAL, their mum or dad firm or associates, and should have been beforehand disseminated by them on tv, radio, web or one other medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. 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