sp 500 daily outlook fri 22 jan 2016 187263 support to watch for another potential upleg 1794482016

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What happened yesterday

The U.S. SP 500 Index (proxy for the S&P 500) has managed to stage a rebound from the 1848/37 intermediate support as expected.

In today’s Asian/early European session, the Index has continued to shoot up and it is now coming close to our first short-term upside target at 1897 (printed a high of 1894).

Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• Current price action has broken out of the “Expanding Wedge” configuration in place since 13 January 2016 high with its former upper boundary now turns pull-back support at 1884.
• The daily (medium-term) RSI oscillator still has some room to manoeuvre to the upside before reaching its resistance. This observation suggests that our preferred mean reversion/”snap-back” rally scenario remains intact.
• A point to note that the hourly (short-term) Stochastic oscillator is now hovering just below its extreme overbought level which suggests limited upside potential. This implies that the Index may shape another leg up before it starts to consolidate/pull-back.
• The significant short-term resistance remains at 1915 which is defined by the minor swing high of 19 January 2016, the 23.6% Fibonacci retracement of the steep decline from 30 December 2015 high to 21 January 2016 low and now close to the upper boundary of a short-term ascending channel from the 1835/20 key medium-term support.
• The short-term support now rests at 1872/63 which is yesterday’s low and the lower boundary of the short-term ascending channel

Key levels (1 to 3 days)

Intermediate support: 1884

Pivot (key support): 1872/63

Resistance: 1915 & 1935

Next support: 1820

Conclusion

The mean reversion/”snap-rally” remains intact.  We have tightened the short-term pivotal support to 1872/63 for a potential push up target the next resistance at 1915 with a maximum limit set at 1935 (the pull-back resistance of the former long-term ascending trendline from the start of the primary bull cycle in March 2009 & the 38.2% Fibonacci retracement of the steep decline from 30 December 2015 high to 21 January 2016 low).

On the flipside, failure to hold above the 1872/63 pivotal support is likely to negate the bullish tone to see a drop to retest the key 1820 medium-term support.

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