S&P500: Stand Aside

Technicals | Apr 20 2020

Bottom Line 16/04/20

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 2085 / 1990
Resistance Levels: 2800 – 3000 / 3137

Technical Discussion

Reasons to remain cautious (watching the immediate counter trend move):
→ S&P 500 earnings well supported yet upcoming quarterly results will be severely dented for most
→ 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

The Wave-[4] count is continuing to hang in there yet it is essential from here that the recent lows circa 2192 continue to hold. We do have tolerance for a little lower if this price zone needs to be retested, yet not by much ! Our preferred count sits with a 5-wave move having completed as part of a Wave-(A). Yet for the Wave-[4] to complete we will still require a Wave-(B) north and then another Wave-(C) south as a minimum to complete the higher degree pattern. Worth noting as well that the aforementioned Wave-(C) doesn’t mean a new low needs to be witnessed. The Wave-[4] overall may simply coil from here, which means the Wave-(A) on our chart could be the low point within the proposed higher degree pattern.’

The above continues to be our favored interpretation of the trend, with 2800 – 3000 being key. Key because it is an inflection zone that combines the 50.0% retracement of the previous move south. Wave equality on this immediate move north. And then of course dynamic resistance (former support) in the form of the 200 day moving average.

Simply put if price can break above this zone via a move that sticks, then we could be away to the upside again as part of this secular bull market. Yet it has to be said we are very cautious that things are going to be as simple as this. The common process post major market shocks is that price action needs to go through through a multi month accumulation phase that is often symbolised through sideways price action or some form of drawn out coiling process. And we also cannot disregard that price still may need to retest the recent lows circa 2192, of even shake out the last of the hangers on by dropping slightly below this level. We are at a very critical juncture right here !

Trading Strategy

It is easy to want to jump in and get involved again when markets bounce so strongly off major low points. And there are certainly a small number of U.S stocks that have been outperforming in a Covid-19 environment. Yet overall as traders we need to stay disciplined and wait for low risk opportunities to present, plus volatility to subside. And this has yet to occur. So big moves in either direction are still on the table here for the time being. Stand aside.

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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