S&P 500 Technical Outlook: Instability Growing as Market Goes Off the Rails
What's on this page
S&P 500 Highlights:
- S&P 500 roaring higher, but signs of instability are starting to appear
- Long-term chart showing we are in ‘blow-off’ stage
- Shorter-term, operating from both sides of the tape presents challenges
For a longer-term fundamental and technical view on the S&P 500 and other major markets, see the DailyFX Q1 Forecasts.
S&P 500 starting to demonstrate signs of instability
To start the year, the S&P 500 is already up about 6%, indeed a large move in such a short period of time. Especially since it is coming at record highs, and not after coming out of a bottom following prolonged weakness. With the market accelerating upwards, daily ranges are beginning to expand, along with powerful intra-day down-moves starting to show up.
We saw a big intra-day move lower back on the 16th, and yesterday as well. The ‘gap-and-trap’ back on the 16th looked like it might lead to at least some downward follow-through, but buyers quickly snatched up the single-day bear market, and most of the nearly 40-point range was erased in a day’s time.
Long-term chart showing we are in ‘blow-off’ stage
Will we see yesterday’s volatile price action bring downside this time around? Given it appears we are in a ‘blow-off’ phase of the bull-market, it’s hard to bet against the market right now, and one day certainly doesn’t offer a lot of information. The market has gone off the rails beyond the top the of the bull-market channel, a signpost of a blow-off, but it could keep extending…
Chart 1 – S&P 500: Monthly
The labeling in the above chart shows 5 clear waves in an Elliot-wave cycle, with the current leg ‘blowing off’ through the top of the bull market channel. Where wave 5 will end is hard to say, but it does appear we are quickly approaching a major turning point. (For more on the chart above, check out our top trading opportunities of 2018.)
Shorter-term, operating from both sides of the tape is challenging
From a short-term perspective, both sides of the tape are at a bit of a standstill at this juncture. The market doesn’t present appealing risk/reward from either side at the moment. Aggressive traders could use yesterday’s high as a backstop on shorts, but by employing such a strategy it has a ‘picking the top’ feel to it.
From the long-side, the prudent move may to demonstrate patience and wait for a dip/consolidation before entering into new longs. At least in this instance you would have a swing-low from which to assess risk should a larger decline develop.
Check out these 4 methods today for Building Confidence in Trading
Chart 2 – S&P 500: Daily
Volatility is beginning to increase, with some sharp intermittent intra-day sell-offs. It suggest in the short-term that instability is growing and a decline of some magnitude could be nearing.
Whether you are a new or experienced trader, we have several resources available to help you; indicator for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
---Written by Paul Robinson, Market Analyst
To receive Paul’s analysis directly via email, please SIGN UP HERE
You can follow Paul on Twitter at @PaulRobinsonFX
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.