sp 500 daily outlook wed 16 mar 2016 turning toppish below 203040 risk zone 1802122016

(Click to enlarge charts)

What happened yesterday/earlier

The U.S. SP 500 Index (proxy for the S&P 500 futures) has pushed higher as expected towards the 2030/40 “risk zone” (printed a high of 2021 in this morning, 16 March 2016 Asian session).

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

Today will be another key date for the markets as the U.S. central bank (Fed) concludes its 2-days meeting. Market participants are not expecting any hike on its key benchmark fed funds overnight interest rate at the current 0.5%.  Recent data on unemployment at just 4.9% and inflationary pressures (core Personal Consumption Expenditures Index – ex food & energy growth) has inched up to 1.67% (Fed’s preferred target is set at 2%), the Fed is now getting close to meeting is dual mandate on employment and inflation.

The key emphasis today will be the press statement and conference to see how Fed Chairwoman, Yellen guide market participants’ expectation on the pace of future interest rate hikes (market is still expecting only 1 hike for this year versus the current “dot plot” by Fed’s officials estimations of 4 hikes (today’s updated “dot plot” is likely to be downgraded to 3 hikes for this year given the recent heightened volatility seen in the financial markets).

Key elements

• Current price action has inched up slightly higher below the 2030/40 “risk zone”. It has turned toppish as it traced out an impending bearish “Double Top” configuration with the neckline support at 2004.
• The next significant short-term support rests at 1970 which is the swing low area formed in 11 March 2016 during the post ECB’s press conference sell-off that has tested the former swing high area of 26 February 2016.
• The 4 hour Stochastic oscillator has reached its overbought region which suggests limited upside at this juncture as upside momentum seen in price action is overstretched.
• The upper boundary of the bearish “Ascending Wedge” stands at 2040 which is also defined by a Fibonacci projection.

Key levels (1 to 3 days)

Intermediate resistance: 2030

Pivot (key resistance): 2040

Support: 2004 & 1970

Next resistance: 2081

Conclusion

We maintain our bearish bias below the 2030/40 “risk zone” as latest technical elements have reinforced that the countertrend rally cycle in place since the 11 February 2016 low of 1807 is at its tail end where a potential steep decline should unfold next.

As long as the 2030/40 critical resistance zone is not surpassed, the Index is likely to see a slide to test the neckline support of the mini “Double Top” at 2004 (also slightly below the lower boundary of the “Ascending Wedge”) and a break below it may open up scope for a deeper decline to target the next support at 1970 in the first step.

However, a break above the 2040 pivotal resistance is likely to invalidate the expected bearish scenario to see an extension of the countertrend rally towards the next resistance at 2081 (the descending trendline that has linked the lower lows of the impending “Double Top” since the current all-time high of 2138 printed in May 2015).

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