May 2, 2023
S&P ASX 200 index forms inverted H&S, bullish divergence patterns
The S&P ASX 200 index has been making headlines recently with the formation of an inverted head and shoulders pattern, as well as bullish divergence patterns. These technical indicators suggest that the index may be poised for a bullish reversal in the near future.
The inverted head and shoulders pattern is a bullish reversal pattern that forms after a downtrend. It is characterized by three troughs, with the middle trough (the head) being lower than the two outer troughs (the shoulders). The pattern is complete when the price breaks above the neckline, which is a horizontal line drawn through the highs of the two shoulders.
In the case of the S&P ASX 200 index, the inverted head and shoulders pattern formed over a period of several months, with the left shoulder forming in late 2020, the head forming in early 2021, and the right shoulder forming in mid-2021. The neckline was broken in early August, confirming the pattern and suggesting that the index may be headed higher.
In addition to the inverted head and shoulders pattern, the S&P ASX 200 index has also formed several bullish divergence patterns. Divergence occurs when the price of an asset moves in the opposite direction of a technical indicator, such as the Relative Strength Index (RSI) or Moving Average Convergence Divergence (MACD). Bullish divergence occurs when the price makes a lower low, but the indicator makes a higher low, suggesting that the selling pressure may be weakening.
In the case of the S&P ASX 200 index, bullish divergence patterns have formed on both the RSI and MACD indicators. This suggests that despite the recent downtrend, there may be underlying strength in the market that could lead to a bullish reversal.
Of course, technical indicators are not foolproof, and there are always risks involved in investing in the stock market. However, the formation of an inverted head and shoulders pattern, as well as bullish divergence patterns, are positive signs for the S&P ASX 200 index and suggest that investors may want to keep an eye on this market in the coming weeks and months.