S&P 500 Technical Analysis: US Stocks Ready for the Next Big Drop?

2020-04-24 04:00:00

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S&P 500 TECHNICAL OUTLOOK: BEARISH
S&P 500 TRADER SENTIMENT
S&P 500 TRADING RESOURCES

S&P 500 TECHNICAL OUTLOOK: BEARISH

One-month trend line break hints S&P 500 downtrend may be resuming
Key support near 2600, foothold above 3000 needed to neutralize sellers
Trader sentiment studies warn bearish reversal signal may be brewing

The S&P 500 may be preparing to resume the downtrend launched in late February after the Fed’s spirited firefighting efforts amid the coronavirus outbreak triggered a broad-based recovery in risk appetite, pulling the index up from March lows. Prices have now broken rising trendline support defining the bounds of the upswing, suggesting a correction has run its course and the bearish trend has been re-engaged.

From here, a daily close below initial support at 2726.50 seems likely to open the door for a challenge of the 2603-26 price inflection zone. Extending down beyond that puts the 38.2% Fibonacci expansion in the spotlight. Initial resistance begins in the 2854-90 area. Neutralizing near-term selling pressure in earnest probably demands a daily close above the 3000 figure however.

S&P 500 daily price chart created with TradingView

S&P 500 TRADER SENTIMENT

IG Client Sentiment (IGCS) studies offer a warning to would-be sellers however. The latest data shows that 77.42% of traders are net-short, with the long-to-short ratio at 3.43 to 1. IGCS is typically used as a contrarian indicator, so the net-short skew in traders’ exposure suggests that the S&P 500 is biased higher.

Having said that, traders are less net-short than yesterday and compared with last week. This warns that – despite the bullish tilt implied in overall positioning at surface level - the dominant S&P 500 price trend may be preparing to turn in favor of a downside scenario.