A Technical Cliff Approaches

The S&P 500 is fast approaching a technical cliff -- one defined by an uptrend line drawn off the lows of the last 12 months. A break below this support could trigger a waterfall decline similar to those seen in April 2010 and August 2011.

S&P 500 -- Weekly (Two Years) Source: StockCharts.com View Chart »

A two-year weekly chart shows the uptrend line and a horizontal support level that have formed a triangular support zone, marked in red. Maintaining the integrity of this zone is key to preventing deeper declines in the index. The chart presents a simple technical picture composed of trendlines and basic price and volume indicators. I have used it in previous pieces to highlight reversals that have followed coordinated crossovers in the indicators. The last set of crossovers occurred in October, when the relative strength indicator moved below its 21-period average, moving average convergence/divergence made a bearish crossover, and Chaikin money flow crossed below its signal line....289 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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