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S&P 500 Price Outlook: Bull-Market Correction or More? CPI on Tap

S&P 500 Price Outlook: Bull-Market Correction or More? CPI on Tap

Michael Boutros, Strategist

S&P 500 Index Technical Price Outlook: SPX500 Near-term Trade Levels

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The S&P 500 Index has been trading within the confines of a massive multi-month expansionary range with price turning from the upper bounds on building momentum divergence yesterday. Is this just a pullback or the start of something larger? The battle lines are drawn heading into key US inflation data tomorrow. These are the updated targets and invalidation levels that matter on the SPX500 price charts. Review my latest Weekly Strategy Webinar for an in-depth breakdown of this SPX500 technical setup and more.

S&P 500 Price Chart – SPX500 Daily

S&P 500 Price Chart - SPX500 Daily - SPX Trade Outlook - Technical Forecast

Chart Prepared by Michael Boutros, Technical Strategist; S&P 500 Index on Tradingview

Technical Outlook: The S&P 500 marked an outside-day reversal off fresh record highs yesterday – a feat achieved three times this year. In fact, all five of the previous instances of outside-day reversals in the index did extend lower with an average decline of ~4% before resumption. The decline has already marked a sell-off of more than 3.1% in early US trade on Tuesday with the immediate focus on today’s close with respect to the March trendline. Initial daily support rests at 4120 - a break / close below would suggest a larger correction is underway with such a scenario exposing the 38.2% Fibonacci retracement at 4023.

S&P 500 Price Chart – SPX500 120min

S&P 500 Price Chart - SPX500 120min - SPX Trade Outlook - Technical Forecast

Notes: A closer look at S&P 500 price action shows the index trading within the confines of a descending pitchfork formation extending off the highs with the 25% parallel converging on near-term support here at the late-April swing low / Mary opening-range low at 4120/29 – looking for possible inflection here. Initial resistance stands at the high-day close at 4183 with near-term bearish invalidation at 4219. A break lower from here would keep the focus on the lower parallel / 4067/79 and 4023- both regions of interest for possible downside exhaustion IF reached.

Bottom line: The S&P 500 registered an outside-day reversal off uptrend resistance this week and threatens a larger pullback in price while within this near-term formation. From at trading standpoint, look for possible topside exhaustion ahead of the upper parallels on recoveries IF price is heading lower on this stretch – ultimately a larger pullback may offer more favorable opportunities close to uptrend support with a breach above the April high at 4219 exposing the record highs at 4245 and beyond.

For a complete breakdown of Michael’s trading strategy, review his Foundations of Technical Analysis series on Building a Trading Strategy

S&P 500 Trader Sentiment – SPX500 Price Chart

S&P 500 Trader Sentiment - SPX500 Price Chart - SPX Retail Positioning - Technical Forecast
  • A summary of IG Client Sentiment shows traders are net-short the index - the ratio stands at -1.47 (40.51% of traders are long) – typically bullishreading
  • Long positions are13.22% higher than yesterday and 2.97% higher from last week
  • Short positions are 8.57% lower than yesterday and 13.50% lower from last week
  • We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests SPX prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current S&P 500 price trend may soon reverse lower despite the fact traders remain net-short.

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Key US Data Releases

Key US Data Releases - USD Economic Calendar - SPX500 Event Risk Ahead - Inflation in Focus

Economic Calendar - latest economic developments and upcoming event risk.

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- Written by Michael Boutros, Currency Strategist with DailyFX

Follow Michael on Twitter @MBForex

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

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