S&P 500, Weekly
US stock market has been performing very sluggishly for the most part of this year. It is still technically in an uptrend but when compared to returns in previous years S&P 500 index has really been moving sideways. This suggests that hedge fund money has been more interested in Japanese and European stock markets that with adequate currency hedges can produce better returns. Another issue is the USD that still is at relatively elevated levels. This hurts the earnings of those US corporations that make a significant part of their profits outside the US. If the US Fed raised the rates in this environment, the dollar would be likely to move even higher and hurt the US stock market and through the diminished wealth effect do the same to consumer sentiment and spending. Some 70% of the US GDP comes from personal spending.
Since the beginning of May S&P 500 e-mini index future (ES) has been tied between a support created by a Fibonacci retracement cluster at 2057 and 2070 and a resistance created by a weekly pivot candle range (2111.50 – 2134.00). The 1.5 stdv Bollinger bands also coincide with these levels and have helped the market to stay between the boundaries. Price has moved outside the bearish wedge over the last two weeks and has now moved back inside the formation. This week the resistance was challenged but price corrected lower again.
S&P 500, Daily
ES has been trading inside a rising regression channel since mid-January but has not been able to move to the channel top after initial rally in February. This is a sign of weakness but this market is not ready to sell off yet as it has not been breaking supports and making lower lows.
Over the month of June index has been trading between pivotal support at 2061.25 and resistance at 2121.25. It is at the time of writing reacting lower from this resistance level after Stochastics moved to overbought levels and are now rolling lower with the price. Upside is limited by both the historical resistance and Bollinger Bands but also by the black regression line.
Move to lower Bollinger Bands at 2080 looks likely. Several technical factors coincide close to this area: 1) rising trend channel bottom 2) horizontal support level and 3) the Bollinger Bands. This is likely to attract buyers at those levels but before price can move there it needs to penetrate some supports and this usually causes small rallies that can be utilised as short entry opportunities.
S&P 500, 240 min
Price was wedging strongly as it approached the resistance at 2121.25 while Stochastic Oscillator diverged from price by making lower highs (price made higher highs). Now that price has broken out of the bearish wedge ES is breaking supports and respecting resistance levels as evidenced by the violation of 2111.25 support and then failing to move above it again. Price is trading at 50 period SMA and lower Bollinger Bands which could mean that this market provides us with other opportunities to sell the rallies. Nearest significant support and resistance levels are at 2072.75 and 2111.25.
Conclusion
Long term picture in S&P 500 index is somewhere between neutral to the slightly bearish. Market is still technically in an uptrend but is showing signs of weakness (bearish wedge). I don’t expect ES to make new highs but rather see it moving sideways until it’s ready to have a correction to support near 2000 mark. Short term ES might rally a bit I am seeing resistance in 2112 – 2117 range which should be enough to turn it lower. In such a case my target levels in the downside are T1: 2100 and T2: 2082.
Janne Muta
Chief Market Analyst
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About Janne Muta, HotForex’s Chief Market Analyst
Janne Muta is a seasoned industry professional with over 16 years experience in the global markets. Originally from Finland, Janne has worked for institutions in both Helsinki and London as an institutional fund manager, global market analyst and FX educator.
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