sp 500 further potential decline below 235460 1847352017

Short-term Technical Outlook (Thurs, 23 Mar 2017)

(Click to enlarge charts)

What happened earlier/yesterday

The U.S. S&P 500 Index (proxy for the S&P 500 futures) had plummeted, broke below the 2372 and even the 2354 medium-term pivotal support within a single day on Tue, 21 March 2017 in the U.S. session which invalidated the initial preferred bullish bias (click here for a recap).

There was no major fundamental event that triggered the 1.5% sell-off seen in S&P 500 on 21 March 2017. Ironically, the higher beta Nasdaq 100 Index had managed to print a new all-time intraday high of 5439 during the opening hour on 21 March 2017 assisted by an announcement of a product launch on a new version of iPad from Apple. But its initial gains evaporated within minutes as the Nasdaq 100 declined by 1.85% to close at 5332 on the same day.

This post U.S. presidential election rally in place since 09 November 2016 has been driven by President Trump’s proposed aggressive infrastructure spending, tax cuts and financial deregulations plans (Trumponomics). On the aggregate, market participants have hoped that these fiscal policies will translate into higher earnings growth for U.S. corporations in order to justify the current high valuation of stock prices.

We had highlighted in our earlier technical analysis reports that the rally from the 11 February 2016 low (washout triggered by the 2^nd China Yuan devaluation) of the S&P 500 is likely a melt-up phase to complete the primary bullish cycle in place since the famous March 2009 low of 666 before a potential 20% to 30% correction occurs.

Market participants have started to turn lethargic on the hopes of Trumponomics as its positive effects on the financial markets have started to fade away without any signs of details or implementation. In addition, President Trump’s administration and the Republicans now face the risk of a hurdle to overturn ObamaCare with a new health care plan due to disagreement between Republican members where a further delay in the implementation of the new health care plan (a first priority for Trump’s administration) will push back the implementation of infrastructure spending, tax cuts and financial deregulations policies that are much needed to create the “fuel” for the bulls to march upwards.

What is in store now for the S&P 500?

Key technical elements

• From a longer-term perspective (1 to 3 months), the Index is still evolving within a bullish ascending channel in place since 11 February 2016 with its lower boundary now acting as a support at 2280/40 that also confluences with Fibonacci retracement clusters.
• Based on the Elliot Wave Principal and fractal analysis, we still view that the up move from 11 February 2016 low as a “melt-up” phase with potential end target of the primary degree impulsive wave V at 2467/78 before a potential 20% to 30% correction materialises to retrace the on-going multi-year uptrend from March 2009 low.
• From a medium to short-term perspective (1 to 3 weeks), the price action seen on 21 March 2017 has triggered the start of a potential corrective immediate degree wave 4/from the Elliot Wave Principal perspective with potential end targets at 2280 and 2240.
• Since the post U.S. presidential election on 09 November 2016, the two leading sectors of theS&P 500 are the Financials and Technology. As seen from the latest technical charts of the Financials (XLF) and Technology (XLK) sectors ETFs, they now faces the risk of a further decline towards their next respective supports at 22.85/25 and 50.85 respectively.  Therefore from a sector rotation analysis perspective, it can lead to further weakness in the S&P 500 (refer to the first two charts).
• From the hourly chart of the U.S. S&P 500 Index, it has managed to stage a rebound from the 2337 minor support but remains below the 2354/2360 resistance which is defined by the former medium-term swing low areas of 10 March/14 March 2017 and the 38.2%/50% Fibonacci retracement of the recent steep decline from 21 March 2017 high of 2382 to yesterday’s low of 2336.
• The daily RSI oscillator has broken below its former support in place since 30 December 2016 and still has further downside potential before it reaches an extreme oversold level (depicted by the pink box). These observations suggest a revival in downside momentum that can translate into further potential decline in price action of the Index.
• The next significant short-term support rests at 2315 which is defined by the minor swing low area of 14 February 2017 and the 1.618 Fibonacci projection of the decline from the current all-time high of 2401 to 10 March 2017 minor swing low of 2354 projected from the 16 March 2017 minor swing high of 2392.

Key levels (1 to 3 days)

Intermediate resistance: 2354

Pivot (key resistance): 2360

Supports: 2337 & 2315

Next resistance: 2372 (medium-term)

Conclusion

As long as the 2360 short-term pivotal resistance is not surpassed, the Index may see a further potential push down in the short-term (1 to 3days) to retest 2337 before targeting the next support at 2315 in the first step.

On the other hand, a clearance above 2360 may put the bears on hold for a push up to test the  medium-term resistance at 2372 (the pull-back resistance of the former ascending channel support from 04 Nov 2016 & descending trendline from 16 March 2017 minor swing high).

Charts are from City Index Advantage TraderPro & eSignal

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