sp 500 daily outlook wed 18 may 2016 risk of minor rebound at 203936 before another potential downle

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. SP 500 Index (proxy for the S&P 500 futures) has shaped the expected decline and almost hit the upper limit of the range bottom/support at 2039/2036 (printed a low of 2040) despite better than expected Industrial Production (0.7% vs 0.3%) and Housing Starts (1.172 mil vs 1.127 mil).

Please click here for a recap on our previous daily short-term outlook/strategy.

Key elements

• The Index is now coming close to the key neckline support of the impending bearish “Head & Shoulders” configuration at 2039/36.
• Based on the Elliot Wave Principal and fractal analysis, the Index is evolving within a potential triangle range configuration in place since 06 May 2016 low of 2036. A typical triangle range configuration tends to see a set of 5 waves movement (a, b, c, d & e). The decline in price action seen yesterday is likely to see a close completion of the downleg wave d* with potential end target at the 2039/36 range bottom/support. Right now, the Index now faces the risk of a minor rebound at 2039/36 to complete the up move wave e* of the triangle range before another set of potential impulsive downside movement occurs.
• The potential end target of the possible up move wave e* of the triangle range stands at 2065/680 which is also our current medium-term pivotal resistance, the former minor swing high area of 13 May 2016 high @9pm and now the descending trendline in place since 21 April 2016 high,
• The  next short-term support after 2039/36 rests at 2025/22 which is defined by a minor swing low area of 24 March 2016 and the 1.00 Fibonacci projection of the distance of the down move from 11 May 2016 high of 2085 to 16 May 2016 low of 2039 projected to yesterday minor swing high area.
• The 4 hour & 1 hour Stochastic oscillators are coming close to their respective extreme oversold levels which reinforces the risk of a minor rebound around the 2039/36 support.

Key levels (1 to 3 days)

Pivot (key resistance): 2065/68

Support: 2039/36 & 2025/22

Next resistance: 2083

Conclusion

Yesterday’s expected decline is now coming close to the target (minor range bottom/support + neckline of the bearish “Head & Shoulders” configuration) at 2039/36  where the Index may shape a minor rebound first towards the 2065/68 daily short-term pivotal resistance before another potential downleg materialises to target the next short-term support at 2025/22.

However, a clearance above the 2065/68  pivotal resistance is likely to put the bears on hold to see a further squeeze up to retest the next resistance at 2083 (the swing high areas of 03 May/11 May 2016).

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