Featured Trade SP 500 blow off move extends

Short-term technical outlook on S&P 500 (Thurs, 30 Aug)

Key technical elements

• Since its 15 Aug 2018 low of 2802, the SP 500 Index (proxy for the S&P 500 futures) had rallied by 4% to break above its previous all-time high level of 2877 printed on 29 Jan 2018 and a daily close above the 2880 medium-term pivotal resistance on this Mon, 27 Aug. The recent bullish sentiment has been driven by the success of U.S. and Mexico bilateral trade negation where most market participants seems to translate such success to a revamped NAFTA deal with Canada. In addition, the softening of USD strength that started last week has been reinforced by the reimplementation of a counter cyclical factor (that was taken out earlier this year) by PBOC to decide the daily fixing of the CNY rate.
• From a technical analysis perspective, the movement from 15 Aug 2018 low seems to be like a blow off move where only certain stocks/sectors are contributing to the rally rather than a broad-based participation. Only three S&P sectors; Technology, Consumer Discretionary and Healthcare are outperforming the S&P 500 based on their respective relative strength analysis constructed by the respective exchange traded funds. The other two “risk on” heavy weights; Industrials and Financials have continued to underperform since the bullish breakout of the S&P 500 from its upper limit of a 6-month plus range configuration on 12 Jul 2018 (refer to the 3rd & 4th charts).
•  Also, current sentiment represents this potential blow off move (a dramatic price movement that is generally seen near to peak of a market top characterised by overly exuberant market participants). The behaviour of market participants seems to be over exuberant and complacent at the moment where the thought of central banks to come in as a “last resort” to provide liquidity to the market has come back with a vengeance with most participants view Fed Chairman Powell’s speech at last Fri, 24 Aug Jackson Hole symposium as more dovish despite U.S. inflation pressures has continued to pick up where core CPI has been heading north since the start of the year, up to 2.4% y/y in July versus 1.8% y/y in Jan 2018 coupled with the on-going trade tensions with U.S and China that has not shown any signs of progress.  External factors include the on-going Italy’s debt woes that are still in the backdrop where the Italian coalition government may pass a budget busting package that can cause the budget deficit to soar to 7% of Italy’s GDP, above the 3% threshold imposed by EMU.  
• The short-term uptrend of the blow off move is still clearly intact supported by medium-term momentum as the daily RSI still has potential room to manoeuvre to the upside before it reaches an extreme overbought level at 87.
• The next significant resistance to watch will be at 2940 which is the long-term pivotal resistance (refer to our Q3 Global Markets Outlook presentation deck). It is being defined by a Fibonacci projection cluster and now the upper boundary of a minor ascending channel in place since the recent 15 Aug 2018 low.
• The key short-term support to watch from a 1 to 3 days perspective will be at 2894 which is defined by the lower boundary of the minor ascending channel, the minor swing low area of 28 Aug 2018 and close to the 23.6% Fibonacci retracement of the entire on-going up move from 15 Aug 2018 low to yesterday, 29 Aug U.S. session high of 2916.

Key Levels (1 to 3 days)

Intermediate support: 2904

Pivot (key support): 2894

Resistances: 2932 & 2940 (key long-term pivot)

Next support: 2880

Conclusion

Therefore, as long as the 2894 short-term pivotal support holds, the Index is likely to see a further potential up move within this impeding blow off phase to target the next resistances at 2932 follow by 2940.

On the flipside, failure to hold at 2894 sees a deeper pull-back to retest the 2880 support (the previous all-time high area of 29 Jan 2018, the pull-back support of former ascending range resistance from 18 Apr 2018 high).

Charts are from City Index Advantage TraderPro & eSignal