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S&P 500 Price Outlook: Index Tests Trendline Extremes in Bear Market

S&P 500 Price Outlook: Index Tests Trendline Extremes in Bear Market

2020-03-13 18:00:00
Peter Hanks, Analyst
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S&P 500 Forecast:

  • The S&P 500 is down more than 25% since its February 12 peak
  • Friday saw price action slow compared to recent days following the index’s worst daily performance since 1987
  • Still, volatility looks primed to continue and IG Client Sentiment suggests the S&P 500 may fall further

S&P 500 Price Outlook: Index Tests Trendline Extremes in Bear Market

The S&P 500 posted a few record-setting performances this week including two triggered circuit breakers and a limit higher ahead of Friday’s open. Altogether, coronavirus, liquidity and recession fears sparked panic that saw the SPX fall -13.25% this week alone. The catastrophic stock market losses have wiped away trillions of dollars in market capitalization and sent the index crashing toward a supportive trendline that has held since 2009.

S&P 500 Weekly Price Chart (2009 – 2020)

S&P 500 weekly price chart

Created in TradingView

While the Fed’s operations look to provide a short-term cushion for the equity market and sentiment, fear may eventually return to the market as containment measures stifle economic activity in the world’s largest economies. Consequently, confluent support around the 2,354 mark may prove critical in staving off further losses.

What Markets are Rising as the Dow Jones and Crude Oil Collapse?

Since the three US indices have forfeited their bull market status already, the trendline has assumed an almost symbolic status as marking the final technical level to keep the rally since 2009 alive. Should it fail, the door to further losses will be opened and the 2,000 mark may quickly come into view. Therefore, technical traders should keep a close watch on the area in the week ahead.

US 500 BULLISH
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of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -24% 3% -5%
Weekly -25% 7% -2%
What does it mean for price action?
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Since the fundamental landscape really has no historical comparison, forecasting directional moves is incredibly difficult. That being said, calling a bottom at this point would be rather presumptuous and IG Client Sentiment data may suggest the S&P 500 has further to fall with a majority of traders now net-long the index.

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Further still, recent weeks have displayed the risks attached with maintaining exposure over the weekend so it would be prudent to postpone entry until next week. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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