sp 500 bear trap above 2090 1836712016

S&P 500 Technical Outlook

(Click to enlarge charts)

What happened earlier

With reference to our weekly technical outlook published at the start of this week (click here to recap), we had highlighted that the significant pull-back support to watch for the U.S. SP 500 Index (proxy for the S&P 500 futures) will be at the 2110/2100 zone if the medium-term pivotal support at 2124 did not hold. A clear break below (daily close) below 2110/2100 is likely to trigger a deep decline (approximately 5%) to test the key long-term pivotal support at 1990 (see weekly chart).

The Index had broken below the 2194 medium-term pivotal support on Tuesday, 01 November 2016 and continued its descend towards the 2110/2100 significant pull-back support zone which was the former range top from 17 May 2015 that held prior advances before a bullish breakout that occurred on 08 July 2016 that took it to a new all-time high of 2194 printed on 15 August 2016.

The main reason for this decline (down by 4.7% since its all-time high level of 2194 till yesterday, 03 November closing level of 2089) is caused by U.S. presidential candidate Hillary Clinton’s initial “comfortable lead” over Donald Trump in polls had narrowed significantly since the sudden shock announcement from FBI on last Friday, 28 October to reopen Clinton’s private email server case. Clearly, the stock market has viewed a Donald Trump victory as a “disaster”.

Despite yesterday, 03 November closing level of 2089 on the S&P 500 which is 0.5% deviation below from the lower limit of the significant 2110/100 pull-back support, we are not convince to validate a further steep decline at this juncture from a technical analysis perspective. Arguments are as follow:

• The daily RSI oscillator is now back at an extreme oversold level where prior significant price action bullish reversals have occurred since January 2016. This observation suggests that the recent downside momentum of price action is “overstretched”.
• An “excess level” of 2090 is being derived right below the 2110/2100 significant graphical pull-back support which is defined by the Elliot Wave Principal/fractal analysis (61.8% retracement of the advance from 27 June 2016 low to 15 August 2016 high + 1.00 projection from 15 August 2016 high).
• From  the major S&P 500 sectors analysis breakdown, since hitting the all-time high of 2194 on 15 August 2016 till yesterday 03 November 2016, the best performing sector  is the Financials (up 5.49%) and the worst performer sector is Health care (down 6.89%).
• Interestingly, the S&P Financial sector exchange traded fund (XLF) is now above its medium-term support of 19.44. In addition, the daily RSI oscillator is holding above its ascending trendline support as well. This is a positive observation that should support the S&P 500 at this juncture if the current market leader, the Financials sector can stage a rebound above its 19.44 support.
• Also from a behavioural finance perspective, global stock markets have already started to price in at least a 50% probability of a Trump victory (the worse of the two evils) which an actual Trump victory may not trigger a significant decline in stocks post-election.

Key levels (1 to 3 days)

Supports: 2090, 2040 & 1990

Resistances: 2115 & 2155

Conclusion

Therefore, we are now adopting a neutral stance in short-term between 2090 and 2115. Only a break above 2115 is likely to revive a short-term bullish tone for a push up towards the next resistance at 2155.

Charts are from City Index Advantage TraderPro, StockCharts.com & eSignal

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