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S&P 500 Technical Update: Dip Buyers in Holding Pattern

S&P 500 Technical Update: Dip Buyers in Holding Pattern

What’s inside:

  • S&P 500 remains pointed higher, but may see short-term weakness
  • Waiting for a dip to support before looking for fresh longs
  • Global indices on a tear helps strengthen continued bid, but risk of momentum slowing is on the rise without retracements

For forecasts and educational material, see our Trading Guides.

On Friday, we expressed our sentiment that the market is a bull until proven otherwise, and that we will look to support on a dip for a potential long entry in the S&P 500. So far, no dip to support. Yesterday, a ‘doji-like’ candle was put in, suggesting we may see short-term weakness, but not a substantial enough of technical event in our book to take a trade against the recent surge. (At least not outside of a daytrade.)

But if yesterday's candlestick results in a decline in the coming days we will take interest in how the market reacts at lower levels. The lines of support we are focused on are: the trend-line off the February low which was recaptured on 12/7 and the trend-line rising up from the 11/4 low. It’s possible with a little time and minor backing-and-filling the two intersect with the S&P and create confluence.

Equity indices from Japan to Germany to the U.S. have traded in straight-line fashion recently, making it difficult to establish fresh long positions without being aggressive on any minor dips, in most instances occurring only on an intra-day basis. Global markets rallying in concert is a sign of strong risk sentiment, not easily broken in short-order. End of the year seasonality favors higher prices, but risk of momentum slowing is on the rise without any dips to help alleviate overbought conditions.

For now, we could see short-term weakness set into the S&P, but it will be viewed favorably for longs barring a swift turn lower in momentum and break of noted support.

S&P 500: Daily

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---Written by Paul Robinson, Market Analyst

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