sp 500 daily outlook thurs 22 oct bearish breakout of expanding wedge indicates start potential deep

(Click to enlarge charts)

What happened yesterday

The U.S. SP 500 Index (proxy for the S&P 500) has managed to stage a rebound and almost hit the lower limit of our expected upside target zone at 2050 (printed a high of 2041, a difference of 0.4% versus the expected target).

Thereafter, a sell-off occurred and the Index broke below the 2022 short-term pivotal support. Please click on this link for a recap on our previous daily outlook.

Key elements

• Since the start of this week, we have been advocating that any potential rally will be considered as a “last push up” before the Index enters into a deeper pull-back/consolidation phase (for justifications, please click on this link for our weekly outlook published on this Monday).
• The Index has started a bearish breakout from a toppish chart pattern called, “Expanding Wedge”. Based on the Elliot Wave Principle, this type of chart pattern is usually seen at the end of a bullish impulsive wave structure, the 5^th wave where market participants has entered into a state of uncertainty in the future direction of  the Index. This type of psychology can be characterised by the highly volatile churning price action movement seen as the Index evolved within the “Expanding” Wedge” in place since 16 October 2015 low (see 2^nd chart).
• The pull-back resistance of the “Expanding Wedge” stands at the 2028 level.
• The hourly (short) RSI oscillator has turned bearish as it has broken below its trendline support and the 50% neutrality level. In addition, it has flashed a prior bearish divergence signal. These observations suggest further weakness in price action is expected.
• The support zone to watch will be at 1999/1992 which is swing low area of 15 October 2015 and the pull-back support of the “Double Bottom” bullish breakout.

Key levels (1 to 3 days)

Pivot (key resistance): 2028

Support: 1999 & 1992

Next resistance: 2050/2060

Conclusion

Current technical elements are in favour of the start of a deeper pull-back/consolidation phase which suggests that highly likely we have seen the end of the bullish impulsive wave 1/ structure in place since 29 September 2015 low at the 2041 high.

As long as the 2028 daily (short-term) pivotal resistance is not surpassed, the Index is likely to see a further decline to target the next support at 1999 and even 1992.

However, a push back above the 2028 pivotal resistance may invalidate the bearish tone to see a squeeze up towards the 2050/2060 significant medium-term resistance.

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.