sp 500 daily outlook fri 29 apr 2016 potential medium term distribution in progress below 2100110 18

(Click to enlarge charts)

What happened yesterday/earlier

The U.S. SP 500 Index (proxy for the S&P 500 futures) has staged an initial bounce at the 2077 towards the 2100 short-term pivotal resistance (printed a high of 2099) and interestingly, it reversed down right below the predefined 2100 pivotal resistance in the second half of the U.S. session.

Please click on this link for a recap on our on our previous short-term daily outlook/strategy.

Today key U.S. economic data release will be as follow:

1)      Personal Consumption Expenditure Price Index for Mar @1230GMT

2)      Reuters/Michigan Consumer Sentiment Index for Apr @1400 GMT

The latest data on Personal Consumption Expenditure (PCE) Price Index will be the main focus for today as it is the U.S. Federal Reserve’s favourite gauge on inflation which is pegged at a 2% long-term target for the y/y change on the Core PCE Index (exclude food and energy). Its previous reading for Feb 2016 is at 1.7% which has been inching upwards slowly since Apr 2015 reading of 1.2%. In past 3 years, it has not been able to surpass the 1.7% mark and its last reading of 1.8% was seen on Jun and May 2012.

Any increase above 1.7% or even 1.8% for the current Core PCE Index y/y growth will put pressure on the Fed to increase the probability of bringing forward the next policy interest rate hike which tends to be negative for equities at this juncture. Based on the latest data obtained from Fed Funds futures contracts (link), market participants are still pricing the highest probability of 41.9% for the next 25bps hike to occur in the December 2016 meeting.

 Key elements

• Price action has continued to be capped by the key short-term pivotal resistance at 2100 which is defined by the descending trendline in place since 17 May 2015 high that has capped the previous 15% rally that occurred after the sell-off that formed the 24 August 2015 swing low and now also a short-term trendline resistance from 21 April 2016 high.
• The daily RSI oscillator, a measure of price momentum continues to inch downwards from the overbought region since the bearish divergence signal that was in place since 01 April 2016. Current RSI reading has breached below its trendline support (in dotted pink) that was formed in conjunction with the 20 January/11 February 2016 swing low area of the Index. These observations suggest that medium-term downside momentum have resurfaced and the Index is likely to see further downside pressure (see daily chart).
• The first support to watch now will be at 2065 which is defined by the minor swing low area of 18 April 2016 that also coincides closely with the earlier congestion area (the pink boxes) of the former descending range from 07 April to 11 April 2016.
• Based on the Elliot Wave Principal and fractal analysis, the Index is likely to be undergoing a bearish impulsive wave structure of a minor degree (a minimum 5 wave movement) from the 2111 high printed on 21 April 2016. Right now, it is in the motion of undergoing the potential downward wave iii with a potential target at 2044 derived from the 1.1618 Fibonacci projection (see 1 hour chart).
• The 2044 expected wave iii target also confluences closely the 2036 level which is defined by the graphical swing low areas of 8/12 April 2016 and the 23.6% Fibonacci retracement of the whole up move from 11 February 2016 low to last week high of 2111 (see daily chart).

Key levels (1 to 3 days)

Intermediate resistance: 2083

Pivot (key resistance): 2100

Supports: 2065 & 2044/2036

Next resistances: 2110 (weekly pivot)

Conclusion

Short-term bearish bias remains unchanged with the key short-term pivotal resistance at 2100 for a further potential push down to test the 2065 support and a break below the 2065 level is likely to add impetus for a deeper decline to target the key short-term support zone of 2044/36 in the first step.

On the other hand, a clearance above 2100 pivotal resistance is likely to invalidate the short-term bearish expectation to see an upward choppy price action to retest the significant medium-term swing high of 2110 (weekly pivotal resistance).

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