Bottom line: SPX500 remain bearish against 3400 levels, in the long term. The counter trend rally is soon approaching major resistance around 2900 levels and bears are expected to take control back.
Fundamental Outlook:
The SPX500 alongside Dow Jones managed to close higher by over 2% yesterday. Optimism over another $484 billion stimulus talks by Fed and Netflix earnings, showed up on the indices as they opened gap up. As we stare at a Global Recession that could be worst since the Great Depression of 1930s, it is not difficult to gauge another round of selloff inching closer though.
US Dollar gained as EURUSD sold off just ahead of the EU Summit yesterday. There is pessimism over EU leaders coming to an agreement on a $2.2 trillion plan, which helped the US Dollar gain against major currencies, despite a rally in SPX500 and Dow Jones.
Oil prices closed in the green yesterday with Brent over 5% and WTI close to 10%. It is too early to confirm but Oil prices could be well past their multi-year lows respectively. Oil trades above 7% while we write this article and may continue higher as the day progresses.
Technical Analysis:
SPX500 remains vulnerable for yet another round of sell off from 2900 levels. Believe it or not, the rally since 2180 lows is just a counter trend or corrective. The indice has gained by 35% in the last one month but it is no means to measure a trend reversal. It is trading around 2805 levels while we are writing and could reach 2900 before reversing lower again.
SPX500 would hit fibonacci 0.618 retracement of the entire drop between 3400 and 2180 if 2900 is reached. Probability for a bearish reversal is high around 2900/2920 as it is the past support turned resistance zone.
Traders might be preparing to sell between 2900 and 2920 levels, with protective stops above 3200 or 3400 and projected targets below 2200 respectively.
Prepared by
Harsh Japee, Technical Analyst.
SPX500 Chart
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