Chart of the day - Potential capitulation in S&P 500

Short/Medium-term technical out on U.S. SP 500 Index (Tues, 06 Feb)

Key technical elements

  • The earlier anticipated corrective decline of U.S. SP 500 Index (proxy for the S&P 500 futures) right below the 2880 resistance has declined by 12% to print a low of 2531 as seen in today, 06 Feb Asian session. Click here & here for a recap. Interestingly, the decline has stalled right at a major support zone of 2540/30.
  • The major support zone of 2540/30 is defined by a confluence of elements. The pull-back support of the former long-term ascending channel resistance from Mar 2009, the ascending channel support from 11 Feb 2016 low & a Fibonacci retracement cluster (38.2% Fibonacci retracement of the up move from 27 Jun 2016 low to 29 Jan 2018 high & 1.618 Fibonacci projection of the recent decline from 29 Jan 2018 high projected to yesterday, 05 Feb U.S session high) (see weekly & 4 hour charts).
  • Based on the Elliot Wave Principal/fractal analysis, the decline from 29 Jan 2018 high may have met a potential minimum intermediate degree corrective wave (4) target at 2540/30 where the Index can shape a potential bullish reversal.
  • Based on intermarket analysis, the recent 1week plus of decline seen in the S&P 500 has been associated with rising U.S. government bond yields where we have highlighted earlier in my “2018  Global Markets Outlook - Staying Nimble” that the 3% mark is a crucial level to watch in the 10-year U.S. Treasury yield. The narrative that triggered a stock market sell-off via a spike in bond yields is due liquidity tightening conditions. On the contrary, yesterday (05 Feb) steep decline seen in the U.S. session is not associated with a spike in the 10-year U.S. Treasury yield where it declined and formed a daily bearish “Harami” candlestick pattern. These observation suggests that recent run-up in the 10-year yield is due for a potential retracement/pull-back below the key 3% level. Thus, it may add as a “comforter/hand-break” to the steep decline seen in the S&P 500 (see last chart).
  • The significant short/medium-term resistances stands at 2694 follow by the 2740/60 zone (61.8% Fibonacci retracement of the decline from 29 Jan 2018 high to today Asian session low, yesterday, 05 Jan U.S. session former swing low area & the minor descending trendline from 296 Jan 2018 high).

Key Levels (1 to 3 days)

Intermediate support: 2600

Pivot (key support): 2540/30

Resistance: 2694 & 2740/60

Next support: 2480 (long-term pivot)


Today’s steep decline coupled with the above mentioned highlighted elements may have triggered a capitulation in the Index where a potential “snap-back” rally can materialise. As long as the 2540/30 pivotal support holds, the Index is likely to shape a recovery towards 2694 and a break above it opens up scope for a further potential push up to target 2740/60.

However, failure to hold above 2540/30 should invalidate the recovery scenario for waterfall slide to test the 2480 long-term pivotal support.

Charts are from City Index Advantage TraderPro  & eSignal

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