S&P500 through the looking glass!The S&P500 and US Nasdaq run the international show. Whatever they do, the rest tend to follow.
For this reason we'll take a good look at the two giants to see what their technicals look like and if or when they would become bullish again. We'll start off by bringing out our microscope in order to dissect the S&P500.
Starting off on the weekly chart, the index is up by more than +100% since the March bottom last year.
In a normal, healthy trend the price regularly retests its moving averages. As we can see none such has occurred since June last year upon which the price briefly found support on the EMA50 (yellow line) before taking off.
Equally so, if we move onto the daily chart, the ascending channel almost comes across as a parody of technical analysis. It's vastly over-stretched, and I have personally rarely (if ever) seen anything like it myself.
As we can see on the graph below the S&P500 has tested the yellow EMA50 as support on numerous times throughout the last year. Only once (September 22) did it test the EMA50 from below and got rejected, however minor. Now, it's at it again.
The standard fare for a technical development is for the price to test an indicator support such as the moving averages on multiple occasions (EMA50) prior to testing the higher value below (EMA100).
The more times those are tested, and the more times the procedure repeats itself, the weaker it gets, and the higher the likelihood of an even greater moving average being mature for testing (EMA200).
In this case we have now tested the EMA100 for the third time in a year. This is rather remarkable, especially since the higher moving averages typically don't hold up against too much pressure (as opposed to the lower ones such as the EMA20 and -50). Given that the index has just bounced on the EMA100, but is now facing opposition from the EMA50 from below and in combination with a big naughty falling wedge (which technically seems to have more to give), we can seriously expect further short to mid term downside to follow.
As we can see on the graph below I have jotted out a resistance entry on the 2-hour chart, which neatly aligns with the EMA200. This is a good risk to reward short in my opinion. The horizontal green line constitutes my initial target level upon which I will also increase my stop loss to break even.
What further speaks in favor of a short to midterm drop is the RSI, which on the daily is struggling to break above the neutral green 50 line.
But even more alarmingly does the RSI on the weekly, as we speak (or as I speak ...) struggle to break above the upper bearish blue line from below, after having come down from high levels. To those of you who may not know, this is TEXTBOOK distribution behaviour. And unless the RSI can break above it, things look dark, indeed.
Presuming that this duly needed correction continues, what I expect price-wise is for a re-test of the weekly EMA50 and the daily EMA200, which are near enough to count as one unanimous zone.
If, on the other hand, the weekly RSI were to break above the upper bearish blue line with enough safety margins (1%), that'd be all I need to swap foot to being bullish again. Having said that, don't underestimate the heavy technical lid the upper bearish blue line amounts to on its own.
