S&P500: Remain Cautious

Technicals | Apr 01 2020

Bottom Line 31/03/20

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 2085 / 1990
Resistance Levels: 2722 / 2950

Technical Discussion

Reasons to revert to bearish:
→ S&P 500 earnings have been well supported yet upcoming quarterly results will be severely dented
→ Elliott Wave count continues to have motive bigger picture yet now in danger of failing
→ larger retracements have been healthy and well supported to this point
→ Covid-19 now a medium term bearish issue as a minimum

So as you can see on our chart we are now running with two interpretations. The first is that a higher degree Wave-[3] is locked in at the highs and we are now witnessing a higher degree Wave-[4] unfold. It does have symmetry issues admittedly, and I will be happy to fail this as well if the 38.2% – 50.0% price range fails to hold. And these numbers come in at 2475 and 2195 respectively ……

Back onto the daily chart tonight and we will continue with the monthly on Thursday. In particular on Thursday we will take a look at the monthly volume bubble we have been keeping a close eye on. The low thus far on this bearish move south has been 2192. So pretty much to the tick on the 50.0% pullback zone that we’ve been talking about. As stated this is our maximum depth for the proposed Wave-[4] low, which is keeping our secular bullish rhetoric on the table if closing prices continue to stay above this number.

As shown on our chart tonight, the potential is there that we have a 5-wave move completed which we have labelled as a Wave-(A) only. We say only as depending which labeling on our chart proves to be correct, a larger (A)-(B)-(C) move is going to be required to complete the process. As a deeper zig zag if a major high is now in place. Or at best an (A)-(B)-(C) coiling process for the Wave-[4] option which we are still forwarding as our main count. My concern with the latter though is that history tells us whenever we witness price capitulate and then attempt a recovery, a retest of the lows of even a quick probe to even lower levels for a final clean out is quite common. As such we continue to be extremely cautious with this.

Trading Strategy

Based on our ongoing reviews, we would prefer not to trade any initial bounce higher post this powerful and damaging move south. As stated, after major market shocks, V-shaped recoveries are rare, so the expectation over the next month or two is for some retesting around the recent lows to occur at some stage. And that’s based off our most optimistic interpretation of the trend aligned to a Wave-[4] being in play. ‘ Nothing has changed from a trading perspective. Happy to remain on the sidelines and in cash until low risk opportunities start to surface again. That could be a number of months away just yet though.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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