S&P500: the moment of truth
Originally posted on stock market daily.fr
The next few days could be decisive for the US markets, and especially for the S&P500. For the moment everything is going well, but the results season and the next intervention by the Fed could change the situation.
The S&P500 tempers wisely. Not surprisingly, the wave of first-quarter earnings releases continues to surge.
The market was expecting a contraction in earnings of around 5%. It remains to be seen whether overall the results will be “less bad than expected” (down “only” 4% for example, which would no doubt be interpreted as good news), or whether the outlook continues to darken.
Add to that that this weekend will be the day of the three witches, that important statistics concerning inflation will be published, and that next week it will be the oracles of the Fed who will speak…
Unless you want to try a gamble, it is better not to take unnecessary risks for the moment.
That said, be careful not to be lulled by the deceptive calm of the “ruler of the world” index (the S&P500).
Indeed, it does not temporize anywhere, but just under 4,200 pts. A particularly sensitive area.
Let me explain !
A clear loss of trend
The 4,200 pts area is a major chart resistance.
Formerly support, this zone also corresponded to the water line of a shoulder/head/shoulder.
Shoulder/head/shoulder whose objective (dark blue vertical arrows) has moreover been achieved by causing the S&P500 to plunge towards the support of 3,600 pts.
At the same time, the 100-period moving average (100MM in blue dotted lines) is marking time, a sign of a loss of underlying trend since it is flattening out and is also right in the 4 zone. 200 pts.
Second clue to probable weakness in the S&P500: volumes
From the pullback (yellow dot) on the former slanting bearish resistance (turned support once broken), we had a rebound in the S&P500 (light blue arrow) while volumes (yellow dot and light blue arrow too) were in strong decrease.
Morality? Two nearby resistances + falling volumes which indicate that there is no real consensus to support the last bullish impulse = danger!
That said, if we now take a more short-term view, the trend (the blue channel) obviously remains bullish as we approach the resistance zone of 4,200 pts.
On this graph, the moving average (MM100) has however become bullish and is currently going through 4,000 pts. Level through which the blue bullish support also passes.
Since we must give ourselves a rule of conduct:
in the short term, let’s say that as long as the 4,200 pts are an obstacle (the S&P500 is less than 1% away from it), it would be reckless and daring to say the least to continue to take a long position on this index;
on the other hand, a medium-term investor can keep his positions as long as the 4,000 pts hold.
CQFD.
Have a nice week end,
Gilles
