sp 500 daily outlook wed 30 mar 2016 potential bull trap watch the 2041 support 1803802016

(Click to enlarge charts)

What happened yesterday/earlier

In yesterday’s European session, the U.S. SP 500 Index (proxy for the S&P 500 futures) has shaped a bearish breakdown below the lower limit of the bearish “Ascending Wedge” and printed a low of 2028.

After that “dovish speech” from Fed chairwoman, Yellen at the Economic Club of New York where she has reiterated that future policy benchmark interest rate hikes will be gradual due to weaker global growth, the Index has rallied close to 1.4% to test our medium-term weekly pivotal resistance at 2058.

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

Key elements

• Yesterday’s dramatic push up in price action after Yellen’s dovish speech is likely to be caused by a short-squeeze from later short-sellers that initiated their positions when the Index broke below the lower limit of the bearish “Ascending Wedge” in the European session.
• Interestingly, the rally has managed to stall at the a short-term pull-back resistance from the 11 March 2016 swing low area @12am (highlighted by the pink boxes on the 4 hour chart) which is now at the 2058 weekly medium-term pivotal resistance.
• The 4 hour Stochastic oscillator has inched up to reach its extreme overbought level and flashed a bearish divergence signal. This observation suggests that upside momentum is waning and the Index may see a downside reversal at this juncture.
• Despite yesterday strong rally seen in price action, the cumulative NYSE Advance-Decline Volume Line does not print a new high on a daily basis. The NYSE Advance-Decline Volume Line measures the buying and selling pressure (volume) behind an advance or decline for all equities listed on the New York Stock Exchange (NYSE).  This observation suggests that yesterday’s rally in price action has been accompanied by a lower volume reading as compared to the previous session.
• The first support now rests at 2041 which is defined by the lower limit of bearish “Ascending Wedge” and also the pull-back support (in dotted green) of the former short-term trendline resistance.

Key levels (1 to 3 days)

Pivot (key resistance): 2058

Supports: 2041 & 2020

Next resistance: 2081

Conclusion

The Index is now testing our medium-term weekly pivotal resistance of 2058 and we are maintaining our bearish stance due to the above mentioned negative technical elements. The Index needs to break below the 2041 support in order to trigger a further potential downside movement to target the key short-term support at 2020 (the swing low area of 24 March 2016 which also confluences with the congestion level of 14/17 March 2016).

Only a clearance above 2058 is likely to invalidate the medium-term bearish expectation for an extension of the on-going countertrend rally towards 2081 (the descending trendline that has linked the lower lows of the impending “Double Top” since the current all-time high of 2138 printed in May 2015).

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