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Can the S&P 500 again steady the risk ship?

In a week that has already featured a 5 standard deviation move in USDJPY, there has been little respite during the Asian time zone for traders looking to take an early mark before the weekend.

Reports the Covid-19 virus is spreading outside of China as South Korea reported 52 more cases taking its total to 156 and 2 Australians evacuated from the Diamond Princess to Darwin also testing positive. The spread necessitates a change of focus from the virus's impact on the supply chain and tourism to how Asian countries can contain the outbreak.

This realisation has weighed on risk sentiment across the region. The South Korean benchmark stock index, the KOSPI is down -1.25%. In FX, the AUDUSD has fallen below .6600c for the first time since March 2009 and S&P500 futures which were down heavily overnight before a late recovery have slipped again.

One of the things I found interesting about the way the S&P 500 traded yesterday was despite Chinese authorities cutting interest rates, the S&P 500 could muster only a brief rally. When a market doesn’t go up and stay up on good news, albeit expected news, its often a warning sign that the market is tired and ready for a pullback. The technical picture outlined below support this view as well.

In our Week ahead video published on Monday, we spoke about how the rally from the January 31st, 3212.75 low targeted a move broadly into the 3400/3450 region from where we would expect to see a pullback commence. The target region coming from the bullish uptrend the S&P 500 has traded in since October as well as a Wave v Elliott Wave projection.

In the same video, we noted rising signs of bearish divergence via the RSI indicator and said that a break and close below 3330 would signal a retracement back to 3200 was underway.

After the initial signs of rejection from ahead of the 3400/3450 region this week we continue to suggest using a break/close below 3330 as confirmation that a deeper pullback in the S&P 500 is underway. Until then the uptrend will be given the benefit of the doubt.

Can the S&P 500 again steady the risk ship?

Source Tradingview. The figures stated areas of the 21st of February 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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