sp 500 potential major top may have been formed 2685922017

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) 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 2^nd 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

Conclusion

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

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The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

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