sp 500 potential capitulation above 20051995 1818532016

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. SP 500 Index (proxy for the S&P 500 futures) has tested the 2110/21 medium-term pivotal resistance and plummeted towards the medium-term downside target/support at 2036  (printed a low of 2007 in today’s Asian session) as highlighted in our earlier weekly technical outlook/strategy published on Monday (click here to recap).

The carnage seen across all major stock indices futures in this morning Asian session has appeared to be less severe for the S&P 500 futures as it only tumbled by 5.6% from today’s early Asian session high versus DAX (-12.4%), FTSE 100 (-11.3%) and Nikkei (-10.9%). Thus, it will be imperative to monitor the movement of the leader, S&P 500 in the next few weeks that can drive a potential recovery for global equities.

Key elements

• Today’s Asian low of 2007 is just right above the 2005/19951 significant medium-term support which is defined by a confluence of elements (the former swing highs of 27 August  & 17 September 2015 that has been tested thrice and the 38.2% Fibonacci retracement of the recent rally from 11 February 2016 high to this morning Asian session high of 2127) (see daily chart).
• The daily (medium-term) RSI oscillator is now back at its support and coming close to its oversold level which indicates limited downside potential in terms of price momentum at this juncture.
• The short-term resistance to watch will be at 2052 (former minor swing low of 16 June 2016) and 2083 (also close to the 76.4% Fibonacci retracement of the decline from 09 June 2016 to current intraday low of 2007) (see 1 hour chart).
• In terms of implied volatility, the VIX futures (traded outside U.S. session over at Globex) has now reached its “Fear Zone” of 26.40/28.50 where the S&P 500 has managed to shape a recovery in past occasions from supports since the late May 2012 low. This observation represents a potential capitulation on the S&P 500 (see last chart).

Key levels (1 to 3 days)

Intermediate support: 2025

Pivot (key support): 2005/1995

Resistances: 2052, 2083 & 2100/105

Next support: 1947/30

Conclusion

The decline seen in today’s Asian session may be a capitulation where a significant recovery can take place. As long as the 2005/1995 pivotal support holds and a break above 2052, the Index may see a further push up to target the next short-term resistance at 2083 in the first step.

On the other hand, failure to hold above the 2005/19950pivotal support is likely to unleash another round of slide to test the next support at 1947/30 (neckline support of “Double Bottom” breakout & the 61.8% Fibonacci retracement of the rally from 11 February 2016 low to this morning Asian session high of 2127)

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