S&P 500: Confluence of Technical Events Bolsters Case for the Bears
- Short-term technical events led to larger weekly reversal bar
- Weekly rejection occured at major long-term resistance
- Short-term support and resistance outlined
Last week the market started out on a positive note, but then risk sentiment turned south the final two days to conclude the week. We made note of very short-term technical events which suggested this could happen, but now these developments are pointing to an even larger move lower.
The intra-week rise and fall resulted in a bearish weekly reversal bar, and not only does the bar, in of itself, point to lower prices, but the fact it formed at a very important area of resistance over 2100 makes its presence even more significant.
Adding to the bears’ case is the divergence between U.S. indices, poor posturing of the Nasdaq 100, waning market health, and general deterioration in global risk trends. (For more details on these broader developments, check out these two recent pieces of commentary regarding – market divergences and the Nasdaq 100.)
The break of the wedge pattern and 5/19 trend-line on Thursday and subsequent bounce led to the formation and triggering of a short-term head-and-shoulders pattern on Friday. The S&P moved below the measured move target at ~2095 to under 2090. But this was a derived target based on the height of the formation, not an actual level of support; true support isn’t until 2085, a solid level with multiple inflection points proving its validity.
Important short-term levels to watch: Support at 2085 (nearing it at the time of this writing) and then 2072ish. Resistance is in the 2105/08 vicinity. We may not see immediate follow-through on the weekly reversal bar, but should see lower prices when looking out over the next 1-3 weeks.
S&P 500 Daily (Weekly)
Head's up – Tomorrow begins the FOMC meeting, with the Fed to release its decision on rates and policy statement on Wednesday at 18:00 GMT time. There are zero expectations for a rate hike, so it will be all about the tone of the Fed and the central bank’s anticipated path for rates.
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---Written by Paul Robinson, Market Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.