sp 500 exhaustion signs at major risk level 1844612017

Short-term Technical Outlook (Fri, 24 Feb 2016)

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. S&P 500 Index (proxy for the S&P 500 futures) has been flirting around the predefined upper limit’s major risk zone of 2360 since Monday, 20 February 2017. Yesterday, it has managed to close above 2360 at 2363 after a brief drop towards 2355 in mid U.S. session. The minor upside reversal on the S&P 500 is assisted by another all-time high close on the Dow Jones Industrial at 20810.  However, the DJIA’s performance is not being mirrored by the other benchmark indices; Nasdaq 100 and Russell 2000.

Despite a close above 2360 for the S&P 500, we are still not convince on the sustainability of the current up move from a technical analysis perspective as it remained below the excess level of 2380 as per defined in our latest weekly (medium-term) technical outlook published on Monday, 20 February 2017 (click here for a recap).

The next significant fundamental event will be U.S. President Donald Trump’s informal State of the Union address to Congress on next Tuesday, 28 February 2017 where market participants will scrutinise his speech for any details on the promised “bold” tax reforms plans and financial deregulations polices.

Nevertheless, the technical charts have started to show signs of weariness for the bulls.   

Key technical elements

• The higher beta benchmark indices; the Nasdaq 100 and the Russell 2000 (make America great again theme) have started to underperform against the S&P 500 as seen from their respective relative strength charts (refer to the 1^st chart).
• The Dow Jones Transportation Index has reacted from the upper boundary of the bearish “Ascending Wedge” configuration and shows potential at least in the short-term for a further downside movement to test the lower boundary of the “Ascending Wedge” at 9125.
• The intermediate supports of the S&P 500 rests at 2340 (minor swing low area of 17 Feb 2017 & the ascending trendline from 02 Feb 2017 low), 2322 and 2300 (ascending trendline from 24 Jan 2017 low & the 23.6% Fibonacci retracement of the post U.S. president election rally from 04 Nov2016 low)

Key levels (1 to 3 days)

Pivot (key resistance): 2380 (excess)

Supports: 2340, 2322 & 2300

Next resistance: 2467/78

Conclusion

As long as the 2380 pivotal resistance is not surpassed, the S&P 500 is likely to shape at least a potential short-term decline (1 to 3 days) towards 2340 before 2322 with a maximum limit set at 2300.

On the other hand, a break above 2380 may invalidate the preferred bearish bias to see a continuation of the up move to target the next resistance at 2467/78 (the upper boundary of the long-term ascending channel in place since March 2009 low).

Charts are from City Index Advantage TraderPro & eSignal

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