sp 500 potential major top may have been formed 1843362017

Short-term Technical Outlook (Thurs, 02 Feb 2016) (Click to enlarge charts) What happened earlier/yesterday Yesterday, U.S. S&P 500 Index (proxy for the S&P 500 futures) […]

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By :  ,  Financial Analyst

Short-term Technical Outlook (Thurs, 02 Feb 2016)

S&P 500 & sectors performance from 20 January 2016_02 Feb 2017

S&P 500 & sectors performance from 09 Nov 2016_02 Feb 2017

XLF_weekly_02 Feb 2017

XLK_weekly_02 Feb 2017

XLI_weekly_02 Feb 2017

XLB_weekly_02 Feb 2017

S&P500 (daily)_02 Feb 2017

S&P500 (1 hour)_02 Feb 2017(Click to enlarge charts)

What happened earlier/yesterday

Yesterday, U.S. S&P 500 Index (proxy for the S&P 500 futures) has staged an initial push up to print a high of 2289 right before the start of the U.S. cash market open.

The initial positive feedback loop fuelled by the better than expected fiscal Q1 2017 earnings results from Apple (AAPL) has dissipated as the Index traded lower throughout the day even after FOMC monetary policy decision (no rate hike accompanied by a less hawkish statement).

In our latest weekly technical outlook report published earlier on Tuesday, 31 January 2017, we have a preference for a potential last push up towards 2310 max 2326/35 before a correction sets in (click here for a recap). Yesterday’s price action has negated this “last push up scenario” and the Index may have already formed a major top at last week high of 2303.

Key elements

  • With reference from the first 6 charts (performance figures are from ETFs), the sectors leaders that are leading  this rally from 20 January 2016 (capitulation triggered by 2nd Yuan devaluation) and the 09 November 2016 post U.S Presidential election rally are the Financials, Industrials, Materials, Technology. The technical charts of these leading sectors have started to show negative elements right at or below their respective major resistances. Therefore from a sector rotation analysis perspective, the S&P 500 may not be able shape higher highs as the sector leaders have started to show signs of weariness.
  • With reference from the daily chart of the Index, the daily RSI oscillator is now challenging the 50% level and the neckline support of a bearish reversal “Head & Shoulders” formation. These observations suggest that the recent upside momentum of price action has abated and the Index faces the risk of a bearish reversal at this juncture.
  • Based on the Elliot Wave Principal and fractal analysis, yesterday rally from 30 January 2017 low of 2267 may be corrective wave 2 of a minor degree to retrace the minor degree wave 1 bearish impulsive decline from 26 January 2017 high of 2303. The aforementioned corrective rally stalled at 2289 which is close to the 61.8% Fibonacci retracement of the decline from 26 January 2017 high, minor swing high area of 30 January 2017 and the trendline resistance (depicted in pink on the hourly chart) from 26 January 2017 high. Therefore, it is likely that the corrective rally may have seen its end target at 2289 and the Index is now undergoing the start of a potential minor degree bearish impulsive wave 3 which can see marginal new lows at least in the short-term (1 to 3 days).

Key levels (1 to 3 days)

Intermediate resistance: 2275

Pivot (key resistance): 2289

Supports: 2257/54 & 2232

Next resistance: 2303


Technical elements have turned negative for the Index. As long as the 2289 pivotal resistance is not surpassed, the Index is likely to see a further push down to retest the minor range support of 2257/54 (12 Jan/24 Jan 2017) before targeting the next support at 2232 (30 December 2016 low & the 1.1618 Fibonacci projection from 26 January 2017 high).

However, a clearance above 2289 may invalidate the bearish scenario to see a squeeze up to retest the recent all-time level of 2303.

Charts are from City Index Advantage TraderPro & eSignal


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.

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