Featured Trade: S&P 500 right below inflection zone with bearish sightings

An impending bearish impulsive downleg in the works for S&P 500 below 2864

Short-term technical outlook on S&P 500 (Fri, 10 Aug)

Key technical elements

  • The SP 500 Index (proxy for the S&P 500 futures) had continued its push up from its 02 Aug 2018 low of 2791 and recorded a rally of 2.6% to print a recent high of 2864 on Tues, 07 Aug. Interestingly, the up move has managed to stall right at the upper boundary/resistance of the impending “Ascending Wedge” configuration in place since 02 Apr 2018 low of 2553. An “Ascending Wedge” is a bearish reversal configuration that tends to form at the end of a melt-up phase; in the case of the S&P 500, its potential melt-up phase has started on 11 Feb 2016.
  • In conjunction, a series of bearish candlestick patterns has started to form right below the “Ascending Wedge” resistance of 2864 where 3 consecutive daily “Spinning Tops” can been seen since 07 Aug 2018 with a prior gapped up on 06 Aug. In addition, the daily RSI oscillator has flashed a bearish divergence signal at its overbought region. These observations suggest that medium-term upside momentum of price action has started to wane, and a potential bearish reversal is likely to occur next.
  • The next significant short-term support to watch will be at 2845 (former minor swing high areas of 26/27 Jul 2018) and 2825 (former minor swing high of 01 Aug 2018 & 61.8% Fibonacci retracement of the recent push up from 02 Aug 2018 low to 07 Aug high of 2864).
  • The shorter-term hourly Stochastic oscillator has reached an extreme oversold level of 6 where the Index may see a minor bounce at this juncture towards the near-term/intermediate resistance of 2856.  

Key Levels (1 to 3 days)

Intermediate resistance: 2856

Pivot (key resistance): 2864

Supports: 2845 & 2825

Next resistance: 2877/80 (medium-term pivot)


Therefore as long as the 2864 key short-term pivotal resistance is not surpassed and a break below 2845 is likely to reinforce the start of a potential bearish impulsive downleg to at least target the 2825 support in the first step.

On the flipside, a clearance above 2864 put the bears on hold for a squeeze up towards the 2877/80 medium-term pivotal resistance (current all-time high area & Fibonacci projection cluster, refer to this link on our weekly outlook published on Mon, 06 Aug).

Charts are from City Index Advantage TraderPro & eSignal

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