sp 500 bearish breakout from ascending wedge potential start of medium term corrective decline 18281

Daily Outlook, Thursday 25 August 2016 (Click to enlarge charts) What happened earlier/yesterday The U.S. SP 500 Index (proxy for the S&P 500 futures) has […]

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By :  ,  Financial Analyst

Daily Outlook, Thursday 25 August 2016

S&P500 (daily)_25 Aug 2016

S&P500 (1 hour)_25 Aug 2016

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. SP 500 Index (proxy for the S&P 500 futures) has failed to maintain its earlier gains recorded on Tuesday, 23 August where it printed a high 2193. Yesterday, it has reversed down and broke below the 2184 short-term pivotal support and even the lower boundary of the bearish “Ascending Wedge” at 2176 in the closing hour of the U.S. session.

Yesterday’s price action has invalidated our initial preferred final phase push up scenario towards the 2200 resistance (upper boundary of bearish Ascending Wedge). From a technical analysis perspective, the probability is now skewed towards the start of the medium-term (1 to 3 weeks) corrective decline to retrace the medium-term uptrend in place since 27 June 2016 low (post Brexit).

On a side note, we reiterate that we do not expect this corrective decline to become a full-blown bear market decline at this juncture as there are no clear signs of a liquidity squeeze in the financial markets and the 2110 level should provide significant support for another round of “melt-up” (refer to our weekly technical outlook/strategy published on this Monday, 22 August for a recap on the details over here).

Key elements

  • The price action has staged a bearish breakdown below the lower boundary of the bearish “Ascending Wedge” now turns pull-back resistance at 2180 (see 1 hour chart).
  • Medium-term momentum has turned negative as seen on the daily RSI oscillator. It has started to break below its supports (depicted in dotted green) and the 50% level with a prior bearish divergence signal. In addition, it still has room to manoeuvre to the downside before reaching an extreme oversold level. These observations suggest that downside momentum of price action has resurfaced.
  • In the short-term, the supports to watch are at 2168 (17 August 2016 minor swing low) follow by  2155 (medium-term swing low area of 02 August 2016 and close to the 23.6% Fibonacci retracement of the up move from 27 June 2016 low to 15 August 2016 high of 2194.
  • The hourly (short-term) Stochastic oscillator is now coming close to an extreme oversold level which highlights the risk of a minor bounce around the first support at 2168.

Key levels (1 to 3 days)

Pivot (key resistance): 2180

Supports: 2168 & 2155

Next resistance: 2200


Turn bearish to see the start of a potential medium-term (1 to 3 weeks) corrective decline.  From an intraday perspective, the Index may see a minor rebound at the 2168 support towards the 2180 daily short-term pivotal resistance before another potential downleg materialises to target the next support at 2155 in the first step.

However, a clearance above the 2180 short-term pivotal resistance implies that yesterday’s bearish breakdown from the Ascending Wedge support is a failure (bear trap) where it is likely that the Index will resume its climb upwards towards the 2200 resistance.


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