sp 500 daily outlook thurs 05 may 2016 mean reversion rally still in progress potential pull back ab

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. SP 500 Index (proxy for the S&P 500 futures) has staged the final push down as expected to complete a 5 waves impulsive down movement cycle (Elliot Wave & fractal analysis) of a minor degree from 21 April 2016 high. The decline came close to the 2044/36 predefined support zone (printed a low of 2045 in yesterday’s U.S. session) before it staged the expected recovery in the late U.S. session.

Current price action is now fast approaching our expected mean reversal snap back rally target of 2070 (resistance) as per highlighted in our previous daily short-term outlook/strategy (click here for a recap).

Key elements

• Based on the Elliot Wave Principle and fractal analysis, the Index is likely to be undergoing a corrective rally, labelled as b of a minor degree to retrace the 5 waves impulsive down movement of the just completed wave a. The potential end target of the corrective (up move) wave b stands at 2078/83 zone which is defined by the 50% Fibonacci retracement of the whole decline from21 April 2016 high to yesterday’s low of 2045.
• The aforementioned 2078/83 Fibonacci retracement target also confluences with the minor swing high area of 03 May 2016 and close to the descending trendline resistance from 21 April 2016 high.
• The daily (medium-term) RSI oscillator is still below the pull-back resistance which reinforces the expectation that this current rally from yesterday low of 2045 is likely to be corrective in nature (mean reversion) rather than a significant recovery to surpass its  April 2016 high of 2111.
• The key short-term support now rests at 2054 which is former minor swing lows area of 30 April/03 May 2016 and the 61.8% Fibonacci retracement of the current up move from yesterday low of 2045.

Key levels (1 to 3 days)

Pivot (key support): 2054

Resistances: 2070 & 2078/83

Next support: 2045 & 2036

Conclusion

The mean reversion (snap-back) rally is still in progress and we have tightened short-term pivotal support as the first leg of the snap-back rally may end soon.

As the Index is approaching its first resistance of 2070 where we expect a potential pull-back to occur, holding above the 2054 daily short-term pivotal support before a potential second leg of the snap-back rally to materialise to target the next resistance at 2078/83 (potential end of the corrective wave b before the medium-term bearish movement resumes).

However, a break below the 2054 short-term pivotal support is likely to invalidate the short-term rebound to open up scope for a further decline to retest 2045 and even 2036 next.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.