sp 500 drop in progress but risk of a minor rebound first 2690332017

Short-term Technical Outlook (Thurs, 06 Apr 2017) (Click to enlarge charts) What happened earlier/yesterday The U.S. S&P 500 Index (proxy for the S&P 500 futures) […]

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By :  ,  Financial Analyst

Short-term Technical Outlook (Thurs, 06 Apr 2017)

S&P500 (4 hour)_06 Apr 2017

S&P500 (1 hour)_06 Apr 2017

XLK (daily)_ 06 Apr 2017

XLF (daily)_ 06 Apr 2017(Click to enlarge charts)

What happened earlier/yesterday

The U.S. S&P 500 Index (proxy for the S&P 500 futures) had staged a pushed up in the early hours of yesterday’s (05 April) U.S. session due to a better than expected ADP employment data for March (263K versus 187K consensus).

Interestingly, the rally stalled right at the predefined 2373/76 medium-term pivotal resistance as per highlighted in our latest weekly technical outlook report published on Monday, 03 April (click here for a recap) before it sold off by 1.1% and closed near its low of 2350 at the end of the yesterday’s U.S. session.

Key technical elements

  • Since its current all-time high area of 2400 sighted on 01 March 2017, the Index has evolved within an “Expanding Wedge/Triangle” consolidation pattern with its upper boundary at 2373/76 and lower boundary at 2309/2300 (see 4 hour chart).
  • Yesterday’s decline from the medium-term pivotal resistance of 2373/76 has started to get “overstretched” where it faces the risk of a minor rebound at this juncture. In addition, the hourly Stochastic oscillator has just exited from the oversold region and still has room to manoeuvre to the upside before it reaches an extreme overbought level. These observations suggest a potential short-term upside mean reversion in price action (see 1 hour chart).
  • The potential end target of the aforementioned potential short-term rebound stands at the 2355/60 zone which is defined by the former minor ascending trendline support from 27 March 2017 low now turns pull-back resistance and the 38.2%/50% Fibonacci retracement of yesterday’s U.S session steep decline to today’s Asian session current intraday low of 2341.
  • The next significant short-term supports rest at 2337/35 follow by 2321.
  • From a sector rotation analysis perspective, the current two leading sectors (Financials and Technology) of the on-going major uptrend from 04 November 2016 low of the S&P 500 have exhibited bearish signals yesterday. As seen from the daily charts of these sectors’ ETF, the Financials (XLF) has showed a bearish “Engulfing” candlestick pattern below its medium-term resistance of 24.45. Secondly, the Technology (XLK) has shaped a bearish “Shooting Star” candlestick pattern right at its medium-term resistance of 53.62 (refer to the last two charts).
  • Thus with the latest aforementioned bearish signals seen in the XLF and XLK, it is likely to reinforce a further potential down move in the S&P 500.

Key levels (1 to 3 days)

Intermediate resistance: 2355/60

Pivot (key resistance): 2373/76 (medium-term)

Supports: 2337/35 & 2321 (27 March 2017 minor swing low)

Next resistance: 2400 (all-time high area)


Therefore, the Index now may stage a minor rebound first towards the intermediate resistance zone of 2355/60 before another potential downleg materialises to target the next supports at 2337/35 follow by 2321) next in the first step.

On the other hand, a clearance above the 2373/76 medium-term pivotal resistance is likely to invalidate the preferred bearish scenario for a further squeeze up to retest the current all-time high area of 2400.

Charts are from City Index Advantage TraderPro & eSignal


The material provided herein is general in nature and does not take into account your objectives, financial situation or needs. While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments. City Index recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets. It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com.au, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. GAIN Capital Australia Pty Ltd (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.

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