Chart of the day SP 500 bearish breakdown risk of further decline after minor rebound

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By :  ,  Financial Analyst

Chart of the day – S&P 500 bearish breakdown, risk of further decline after minor rebound

What happened earlier/yesterday

The S&P 500 Index (proxy for the S&P 500 futures) had tumbled and broke below its 2445 medium-term neutrality zone support. For a recap, we had turned cautious on this multi-week up move from 13 April 2017 low after it hit our significant medium-term resistance/upside target of 2476/80 on 25/26 July 2017. Please click here and here to review our previous weekly technical outlook reports.

Yesterday’s price movement of the S&P 500 has validated a potential multi-week corrective decline to retrace the major up move in place since 09 November 2016 low.

Let us now review its shorter-term technical elements.

Key elements

  • Based on the Elliot Wave Principal and fractal analysis, the Index is likely to have kick started a minor degree bearish impulsive wave structure in place since its current all-time high level of 2491 printed on 08 August 2017.  Yesterday’s bearish breakdown below 2445 can be considered as the micro bearish impulsive wave iii with a potential end target set at the 2430/28 zone (defined by the 1.618 Fibonacci projection of the length of wave i projected from the high of wave ii at 2477 which also coincides with the former minor swing high areas of 10 Jul to 12 Jul 2017). Thus, the 2430/28 zone will be a potential risk level for the bears where a relief rebound may occur to form the micro degree corrective wave iv before another round of downleg materialises. Thereafter, the bearish impulsive wave v downleg should take shape to complete the aforementioned minor degree bearish wave structure from 2491 high, labelled as wave a (see 1 hour chart).
  • The hourly Stochastic oscillator has reached an extreme oversold level in yesterday’s U.S. session before it staged an exit from its overbought region at the 20% level. These observations suggest that the recent downside momentum of price action has started to wane where a potential minor mean reversion rebound may occur. Therefore, observation from short-term momentum indicator (hourly Stochastic) supports the aforementioned preferred Elliot Wave count and fractal analysis.
  • The key short-term resistances stands at 2445/50 which is defined by the former minor swing low area of 18 July 2017 and a minor descending trendline from the current all-time level of 2491 follow by 2462 next (the former range support in place since 28 July 2017).
  • The next short-term support rests at 2412 which is defined by the low of an hourly “Hammer” candlestick pattern formed on 11 July 2017.

Key Levels (1 to 3 days)

Intermediate resistance: 2445/50

Pivot (key resistance): 2462

Supports: 2430/28 & 2412

Next resistance: 2490


The current short-term minor downtrend remains intact for the Index but it may see a relief rebound above the 2430/28 intermediate support zone towards 2445/50 with a maximum limit set at the 2462 short-term pivotal resistance. As long as the 2462 pivotal resistance is not surpassed, the Index is likely to shape another potential impulsive downleg to test the next short-term support at 2412 in the first step.

On the other hand, a clearance above 2462 should invalidate the preferred bearish bias for a squeeze up to retest its current all-time high level of 2490/91.

Charts are from City Index Advantage TraderPro


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