S&P 500 Technical Analysis – The sellers are back in control

Yesterday, the US ISM Services PMI beat expectations by a big margin and caused a
selloff in the S&P 500. The market pricing for future interest rates
expectations turned a little bit more hawkish with basically a 50/50 chance of
another hike in November and less rates cuts in 2024. Last week we got a “bad
news is good news” type of reaction, while yesterday it was the complete
opposite as “good news was bad news”. It looks like the market is still trading
on interest rates expectations.

S&P 500 Technical
Analysis – Daily Timeframe

On the daily chart, we can see that the breakout
above the 4494 resistance failed
as the S&P 500 rolled over and extended the drop following the surprising
US data. The price is now testing the red 21 moving average where we
should find some buyers looking for another extension to the upside. Right now,
though, the sellers are in control and the price will need to rally back above
the resistance to change the bearish bias.

S&P 500 Technical
Analysis – 4 hour Timeframe

On the 4
hour chart, we can see that we had a strong support around the 4494 level as
there was also the confluence with the
38.2% Fibonacci retracement level.
Unfortunately, the price broke through it with ease, which might be a signal
that the bearish momentum is strong, and we might see more lower lows ahead.
The target for the sellers now is the support at 4324.

S&P 500 Technical
Analysis – 1 hour Timeframe

On the 1 hour chart, we can see that we
had a divergence with
the MACD right
after the breakout. This is generally a sign of weakening momentum often
followed by pullbacks or reversals. The pullback should have ended at the
support in a classic “break and retest” pattern, but given that the price broke
below it, we got a confirmation of a reversal.

From a risk management perspective, the
sellers may want to wait for the price to pull back into the downward trendline where
we have also the confluence of the previous support turned
and the red 21 moving average. This is
where the sellers should pile in with a defined risk above the trendline to
target the 4324 support. The buyers, on the other hand, will want to see the
price breaking above the trendline and the 4494 level to invalidate the bearish
setup and position for another rally into the highs.

Upcoming Events

Today we will have the last important US economic
data for this week: the US Jobless Claims report. We saw just yesterday that
the market doesn’t like strong US data as that raises the chances that the Fed
might need to do more and eventually lead to a worse recession. So, if we get
good data, we should see more weakness in the S&P 500, while bad data
should provide a relief rally. At some point though, the market should start to
worry about bad data as well.

This article was written by FL Contributors at www.forexlive.com. Source