Can SPX Push through a Wall of Resistance?
Updated
Can SPX Continue to Push Through a Wall of Resistance?
Like many other global indices and liquid assets, the S&P 500 (SPX) has had a powerful rally off June 17, 2022 lows. This rally coincided with the July 2022 FOMC meeting and presser—the rally increased in the days preceding the FOMC meeting and then continued in earnest afterwards. This post will not attempt to analyze the public debate over whether Fed Chair Jerome Powell's unscripted comments about the Federal Funds rate being at the "neutral rate" equate to a dovish shift. In any case, markets have seemingly interpreted (or perhaps misinterpreted) this statement as providing support for risk assets.
The Fibonacci resistance discussed below also coincides with major chart resistance shown by the blue rectangle in the chart below. This area of strong resistance captures a number of highs and lows from the consolidation in early June 2022, the lows in March 2022, and the lows in February 2022.
Chart Showing Price Resistance at Former Highs, Lows and and early June 2022 Consolidation
Fibonacci Analysis
SPX has rallied above 4137.50, which is the .50 retracement (R) of this bear market's most recent leg of decline, i.e., the decline from March 29 highs to June 17 lows. At first, SPX stalled at this .50 R for three consecutive days, with each day showing price piercing above this level and then immediately being rejected and closing back below it. But today, price closed above it. This level should continue to be watched as price may push through it and then fail back below again several days later.
But SPX does not have an unfettered path back to all-time highs. Within the coming days, the Fibonacci cluster highlighted on the main chart above will be critical to watch. This cluster ranges from 4114.59 to 4255.13. Note the bullish slope of the 8-day and 21-day EMAs (labeled on the main chart above), which indicate continuing momentum that could allow for another push right up to this Fibonacci cluster area. Price could, however, fail yet again at current levels given that the key .50 R level was near the high of the current price bar's range.
An additional Fibonacci level coincides with the Fibonacci cluster shown on the main chart above. This level is the 1.618 projection (or extension) of the shown in the chart below.
The 1.618 Projection of First Leg of Rally from the July 14 Low
Momentum Analysis
Momentum appears to be in the beginning stages of waning and weakening. For momentum, consider the two charts below showing %B indicator (a derivative of Bollinger Bands) and the RSI indicator.
%B Indicator (Daily Chart) Shows Relative Weakness with New High on August 3, 2022
RSI on Daily Chart Shows Divergence
But note that the divergence on RSI could disappear if price presses up higher tomorrow, drawing the RSI to an even higher level that helps it make a new RSI high along with a new price high. This bears watching carefully.
Finally, the early stages of weakening momentum does not necessarily mean that the rally is finished. It just means that stops on longs should be tightened. And for example, those with a bearish view may want to begin looking for sell triggers signaling a shorter-term trend reversal, but caution for bearish positions is warranted because whether this rally may extend for another month or two or whether the bear market will immediately resume remains unclear.
SPX
SPX500USD
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ES1!
Like many other global indices and liquid assets, the S&P 500 (SPX) has had a powerful rally off June 17, 2022 lows. This rally coincided with the July 2022 FOMC meeting and presser—the rally increased in the days preceding the FOMC meeting and then continued in earnest afterwards. This post will not attempt to analyze the public debate over whether Fed Chair Jerome Powell's unscripted comments about the Federal Funds rate being at the "neutral rate" equate to a dovish shift. In any case, markets have seemingly interpreted (or perhaps misinterpreted) this statement as providing support for risk assets.
The Fibonacci resistance discussed below also coincides with major chart resistance shown by the blue rectangle in the chart below. This area of strong resistance captures a number of highs and lows from the consolidation in early June 2022, the lows in March 2022, and the lows in February 2022.
Chart Showing Price Resistance at Former Highs, Lows and and early June 2022 Consolidation
Fibonacci Analysis
SPX has rallied above 4137.50, which is the .50 retracement (R) of this bear market's most recent leg of decline, i.e., the decline from March 29 highs to June 17 lows. At first, SPX stalled at this .50 R for three consecutive days, with each day showing price piercing above this level and then immediately being rejected and closing back below it. But today, price closed above it. This level should continue to be watched as price may push through it and then fail back below again several days later.
But SPX does not have an unfettered path back to all-time highs. Within the coming days, the Fibonacci cluster highlighted on the main chart above will be critical to watch. This cluster ranges from 4114.59 to 4255.13. Note the bullish slope of the 8-day and 21-day EMAs (labeled on the main chart above), which indicate continuing momentum that could allow for another push right up to this Fibonacci cluster area. Price could, however, fail yet again at current levels given that the key .50 R level was near the high of the current price bar's range.
An additional Fibonacci level coincides with the Fibonacci cluster shown on the main chart above. This level is the 1.618 projection (or extension) of the shown in the chart below.
The 1.618 Projection of First Leg of Rally from the July 14 Low
Momentum Analysis
Momentum appears to be in the beginning stages of waning and weakening. For momentum, consider the two charts below showing %B indicator (a derivative of Bollinger Bands) and the RSI indicator.
%B Indicator (Daily Chart) Shows Relative Weakness with New High on August 3, 2022
RSI on Daily Chart Shows Divergence
But note that the divergence on RSI could disappear if price presses up higher tomorrow, drawing the RSI to an even higher level that helps it make a new RSI high along with a new price high. This bears watching carefully.
Finally, the early stages of weakening momentum does not necessarily mean that the rally is finished. It just means that stops on longs should be tightened. And for example, those with a bearish view may want to begin looking for sell triggers signaling a shorter-term trend reversal, but caution for bearish positions is warranted because whether this rally may extend for another month or two or whether the bear market will immediately resume remains unclear.
SPXSPX500USDSPX500SP500SPYES1!Note
SPX has pushed through the Fibonacci cluster discussed in this post. It lies just a little ways beneath the .618 R of its entire YTD decline at 4367.
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