sp 500 downside risk prevails below 2360 major risk level 1844252017

Short-term Technical Outlook (Tues, 21 Feb 2016)

(Click to enlarge charts)

What happened earlier/yesterday

Yesterday, the U.S. cash equities market was closed for a public holiday. Today’s key economic data/release that may trigger significant movement on the U.S. S&P 500 Index (proxy for the S&P 500 futures)  are as follow:

• Markit Manufacturing PMI for Feb (preliminary) @1445GMT – 55.2 consensus
• Markit Services PMI Feb (preliminary) @1445GMT – 55.7 consensus
• Fed official Harker’s speech @1700GMT

We have published our latest weekly technical outlook on the major stock indices yesterday and maintained our medium-term (1 to 3 weeks) bearish bias on the S&P 500 (click here for a recap).

The current run-up triggered by promises of financial deregulations and bold tax reforms by the Trump’s administration has been overemphasised. Current positive sentiment has appeared to be “overstretched” and there is a risk now that any “tiny” negative shock triggered by upcoming European elections or a potential higher U.S. interest rate environment that can translate into a further tightening of credit conditions for corporations is likely to cause an abrupt downside movement in equities. Let’s us now take a look at the current short-term technical elements.

Key technical elements

• The Index is right below the upper limit of the major risk zone at 2360.  Based on its current up move from the minor swing low area of 02 February 2017, the 2360 is also being defined by a Fibonacci projection cluster (see hourly chart).
• The daily RSI oscillator has already breached its extreme overbought level. In addition, the shorter-term hourly RSI oscillator has flashed a bearish divergence signal. These observations suggest that current upside momentum of price action is being overstretched and started to wane where the Index now faces the risk of at least a downside mean reversion in price action at this juncture.
• The intermediate supports to watch will be at 2322 (ascending trendline from 02 February 2017 low) follow by 2300 (ascending trendline from 24 January 2017 low & the 23.6% Fibonacci retracement of the post U.S. president election rally from 04 November 2016 low.

Key levels (1 to 3 days)

Pivot (key resistance): 2360

Supports: 2322 & 2300

Next resistance: 2380 (excess/medium-term pivot)

Conclusion

Therefore, as long as 2360 is not surpassed, the Index may see a decline at this juncture to target the supports at 2322 follow by 2300 in the first step.

However, a break above 2360 is likely to jeopardise the preferred bearish tone to see a further push up to test the 2380 excess level/medium-term pivotal resistance.

Charts are from City Index Advantage TraderPro

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