sp 500 mean reversion rally in jeopardy watch the 192327 resistance 1796062016

(Click to enlarge chart)

What happened yesterday

The U.S. SP 500 Index (proxy for the S&P 500) has broken the short-term pivotal support at 1908 which invalidated the any further potential upside from the bullish breakout of the “Inverse Head Shoulders” pattern as price action reintegrated back below the neckline which is also close to the 1908 level.

Even though, the medium-term pivotal support at 1873 has not been taken out we are not confident to have a view that the final phase of the mean reversion/ “snap-back” rally is still intact because across the board (Nikkei 225, DAX & Hang Seng) has broken below their respective medium-term pivotal supports.

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

Key elements

• The Index has broken below the lower boundary of the short-term ascending channel in place since 21 January 2016 now turns pull-back resistance at 1923.
• The 61.8% Fibonacci retracement of yesterday down move from Monday high of 1947 to today’s Asian session low of 1892 is at 1927 which confluences closely with above mentioned pull-back resistance of 1823.
• The hourly (short-term) Stochastic oscillator has reached its overbought region which suggests limited upside potential in price action at this juncture.
• The next support to watch will be at 1880/73 which is the medium-term pivotal support and the congestion area of the 28 January 2016 swing low.

Key levels (1 to 3 days)

Pivot (key resistance): 1923/27

Support: 1880/73

Next resistance: 1954/58

Conclusion

Current technical elements and intermarket analysis are not supportive of any potential final phase of the mean reversion rally from 21 January 2016 low. Therefore as long as the 1923/27 short-term pivotal resistance is not surpassed, the Index may see another round of decline to target the 1880/73 medium-term pivotal support.

Only a clearance above the 1923/27 pivotal resistance is likely to revive the bulls to see the continuation of the mean reversion rally towards the next resistance at 1954/58.

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