sp 500 signs of bearish exhaustion emerge potential short term final up move phase in progress 18273

Daily Outlook, Friday 19 August 2016 (Click to enlarge charts) What happened earlier/yesterday The U.S. SP 500 Index (proxy for the S&P 500 futures) has […]

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By :  ,  Financial Analyst

Daily Outlook, Friday 19 August 2016

S&P500 (daily)_19 Aug 2016

S&P500 (1 hour)_19 Aug 2016

VIX & SPX (weekly)_19 Aug 2016(Click to enlarge charts)

What happened earlier/yesterday

The U.S. SP 500 Index (proxy for the S&P 500 futures) has started to trade sideways holding above the 2168 predefined short-term pivotal support ahead of options expiration today.

However, we have started to turn cautious on the on-going medium-term uptrend in place since 28 June 2016 as there are signals/patterns/sentiment that indicate that we may be coming close to potential multi-week correction to retrace this current uptrend details as per highlighted below).

On a side note if this expected multi-week correction does materialise , we do not expect it to become a full-blown bear market decline yet at this juncture as there are no clear signs of a liquidity squeeze in the financial markets and 2110 should provide significant support for another round of “melt-up”.

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

Key elements

  • From the minor swing low area of 02 August 2016, the Index has started to evolve into a bearish chart formation called “Ascending Wedge” where the magnitude of its “higher swing highs” is lesser than the magnitude of its “higher swing lows”. These observation suggest that upside momentum of price action has started to wane when it staged its prior advances since 03 August 2016 minor swing low (see 1 hour chart).
  • The lower boundary (support) of the aforementioned bearish “Ascending Wedge” rests at the 2176/68 zone.
  • A further evidence of the aforementioned slowdown seen in upside momentum can be seen in the bearish divergence signal being flashed out by the daily (medium-term) RSI oscillator even though it has continued to hold above its support and the 50% level.
  • From a contrary opinion perspective, the Index has rallied by close to 10% from the post Brexit low of 1991 seen on 27 June 2016 without any decline so far of more than 3%.  In addition, the VIX futures has reached its “complacency zone” of 12.80/10.10 which implies that market participants optimistic view on the S&P 500 have reached an extreme (low implied volatility as indicated from SPX options) where a potential opposition movement (decline) looms (refer to the last chart).
  • Based on the Elliot Wave Principal and fractal analysis, the minor swing low of 03 August 2016 can considered to end of the intermediate term corrective wave 4/ and the recent up move is the final intermediate term 5th wave, 5/ to complete a primary degree (higher time frame) bullish impulsive wave (3) that is in place since 27 June 2016 low (post Brexit). The potential final wave 5/ is broken down into smaller fractals that consists of minor degree wave structure that can be labelled as 1,2,3,4 and 5. In conjunction with chart formation, the wave 1 and 2 has  been completed  within the bearish “Ascending Wedge” formation with the recent  wave 2 low at 2168 (before the release of the Fed minutes). Therefore, the Index is likely to be undergoing the bullish impulsive wave 3 with potential end target at 2200 which confluences with the upper boundary (resistance) of the Ascending Wedge.

Key levels (1 to 3 days)

Intermediate support: 2176

Pivot (key support): 2168

Resistance: 2200

Next support: 2155 (medium-term)


Maintain bullish stance but cautious as bearish signs have emerged. From the Elliot Wave Principal and fractal analysis perspective, the Index may still see two more up moves before a medium-term decline occurs. As long as the 2168 short-term pivotal support holds, the Index is likely to see a potential push up to target the 2200 resistance.

However, a break below the 2168 short-term pivotal support (Ascending Wedge bearish breakout) is likely to invalidate our preferred final phase push up scenario to kick start the medium-term decline towards the next support at 2155 in the first step.

Charts are from City Index Advantage Trader Pro & eSignal


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