S&P500: Downside Beckoning

Technicals | Sep 02 2019

Bottom Line 29/08/19

Daily Trend: Neutral
Weekly Trend: Down
Monthly Trend: Up
Support Levels: 2822 / 2722 / 2650
Resistance Levels:  2943 / 3028 (new all time highs)

Technical Discussion

The S&P 500 rose on Wednesday recovering from early losses and then closing towards its highs for the day. Energy and financial shares were the main contributors. Yet there does appears to be some nervous energy around in regards to what the next move (Tweet !) is going to be in regards to the U.S / China trade war. And this is clearly being reflected in how price action is behaving at the moment. Wells Fargo in a report last night stated that they can see the chance of another 5% drop in the Index from here down towards 2700. And on this rare occasion we tend to agree with them based on how price action has progressed. Or should we say lacked progression throughout the month of August. And as August comes to close on Friday, we will then be entering into the seasonally weak month of September. Remaining very cautious here shorter term, be it the bigger picture bullish structures continue to remain well and truly intact. 

Reasons to stay longer term bullish (caution remains shorter term):
→ S&P 500 earnings have overall been well supported 
→ Elliott Wave count continues to have motive bigger picture
→ retracements have been healthy and well supported to this point
→ Higher degree Wave-[4] has locked in a major low back in December 2018 

The sideways pattern that has emerged since the 5th August, off the back of an impulsive move south, looks more and more ominous the longer it goes on for. So if price cannot break above 2943 within the coming days, then the likely outcome shorter term is going to be for price to drop lower and head some between the 61.8% retracement zone at 2600 and immediate wave equality target circa the 2725 price zone. For some time now wide ranging negative price bars have been associated with above average volume. Whereas upside moves for the most part have been associated with low volume. In a nut shell this is not a great backing to the trade we presently have running on the long side. The aforementioned flatter type pattern is far more typical of a Wave-(b) as well, as part of a possible (a)-(b)-(c) move lower. It wont be long now before we have our answer.

Trading Strategy

We are presently long at 2896 with stops at 2820. Post our trade triggering price has dropped strongly to 2825. Yet it avoided stopping us out by only a few ticks before bouncing again back up to the 2930 price zone last week. Unfortunately though if this sideways trading continues for too much longer, a break to the downside is going to become more likely than to the upside as stated. We have hedged our bets a little here offering up a shorting opportunity on the Nasdaq on Tuesday if things do deteriorate from here. Yet in regards to the S&P 500 all we can really do right at this juncture is to respect our stop, whilst at the same keeping an open mind on what could unfold here over the coming weeks !

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