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S&P 500 Technical Outlook – Headline Risk Threatens Constructive Posturing

S&P 500 Technical Outlook – Headline Risk Threatens Constructive Posturing

What’s inside:

  • S&P 500 hanging out near highs, mini reversal day yesterday may have ended minor pullback
  • A period of further consolidation may be the best-case scenario for driving through resistance
  • Headline risk: ECB, Comey testimony, UK General Election threaten near-term

Looking for a longer-term view on the S&P 500? Check out our market forecasts.

On Tuesday, we asked, “Will buyers step up on near-term weakness”. The S&P 500 was modestly gapped lower that morning and never really gathered its footing, closing near the worst levels of the session. Yesterday, the market took an early afternoon dive, but dip buyers showed up and put in a small reversal day. Given how strong the market has been it would be unsurprising if that is all we get before pushing to a new high. In the short-term we’ll use yesterday’s low at 2425 as support.

It won’t take much of a rally from here to record a new record high, but there is resistance aside from the high to contend with. The trend-line passing over from the February 2015 high and March 1 high has so far been a point of interest. We noted the other day that given the proximity of inflection points (over 2 years apart) gave initial pause to whether the trend-line would be influential or not. So far it has had some influence, but nothing significant. If the market is indeed as strong as it appears then it shouldn’t be much of a hurdle to overcome. A daily close above Friday’s record high at 2440 will also put the market slightly over the topside trend-line. If this becomes the case, then we will look to that line as support moving forward.

From a tactical standpoint, buying on dips is the favored approach (as is typically the case). If the market doesn’t propel higher after this week’s mini dip and reverse, a period of consolidation may develop – which would be a good thing. A high-level consolidation could set the market up for a stronger move higher than if it were to carve out a new high here in the next couple of days. For now, as long as yesterday’s low isn’t breached on a closing bar basis, then we remain short-term constructive. A drop back lower wouldn’t necessarily be a bearish development, assuming it isn’t aggressive move, but would present caution until we found another support level to lean on. The November slope in this case would be a good spot for the S&P to hold onto.

S&P 500: Daily

Heads up: Former FBI Director James Comey will testify today regarding Trump and Russia, beginning at 14:00 GMT time. At the least expect sporadic intra-day volatility. The ECB is upon us at the time of this writing and could cause volatility in the DAX, and ultimately risk appetite in the short-run should Draghi's tone be strongly hawkish or dovish. Expectations appear to be mixed. Today is the UK General Election, with results to impact tomorrow's trade. Markets are currently set up for a Conservative victory, which may provide a little boost to risk appetite should this prove to be the case. However, in the event of a Labour victory/hung parliament ‘risk-off’ a probable theme tomorrow, but would likely be short-lived for non-UK markets.

Paul conducts webinars every week from Tuesday-Friday. See the Webinar Calendar for details, and the full line-up of all upcoming live events.

---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.