Though we’ve not had a chance to mention it yet, Tuesday’s loss of about 1% has finally prompted us to take an important look at a short-term chart that has implications for even long-term investors. How so? If the S&P 500’s pattern repeats itself for the fourth time over the course of December, we’re all on the verge of riding our stocks lower… to the tune of more than 5% off of current levels. Earth-shattering? Nah, but nothing to blow off either. Here’s a closer look.

Technical analysts talk about them occasionally, but rarely do you actually see one of this quality. What we’re talking about are arcs – bowl shaped trend lines that in this case are providing support as well as resistance for the S&P 500.

The chart below pretty much says it all. The slope of the bullish trading range has all but flattened… a drastic change from the steep slow we saw when the market rebounded in July. In fact, the market’s gone nowhere since hitting the ceiling in early November – a testament to just how strong these arc lines are.

If the pattern repeats itself (and that’s always a big ‘if’), then the index should make its way back to 1035 before too long.

There is a bigger risk than that, however. A move of that magnitude would mean the market hadn’t made a net gain since September… and impatient investors may decide to chuck stocks altogether, pulling them under the lower arc line. If that happens, look out below. There’s no telling where things may land. Needless to say, we’ll be watching closely when/if the time comes. In the meantime, just be aware of the kind of hurdles the market’s not been crossing.

By the way, the other major indices aren’t showing us quite the same shape (the arcs), but they are showing us the same basic idea – the buyers are getting tired, and need a break.

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