Technical analysis of US500

US500, the representative CFD based on the S&P 500, has fallen this week after a hawkish Fed on Wednesday and in line with many indices in Europe and Asia. Uncertainty on monetary policy is significantly higher in the aftermath of Wednesday’s statement and press conference, with a lack of clarity among participants in stock markets when and how the Fed might scale back QE. This TA of US500 takes a quick glance at the daily chart.

Resistance around 4,260, the latest all-time high, isn’t very far off, but weaker momentum over the last few months could gap gains there at least temporarily. Low support might be found around 3,750, but the psychological area of 4,000 and definitely the 161.8% weekly Fibonacci extension area are set to be more important unless senior members of the FOMC explain their relative hawkishness further or sentiment turns more negative.

Technical indicators on US500 D1


Moving averages continue to give a strong buy signal, with each of the 50, 100 and 200 SMAs successively above slower lines and below the price. The main support from moving averages for now is the value area between the 50 and 100. Price is currently testing the 50 SMA.

The relatively sharp contraction of Bollinger Bands so far this month might suggest a period of consolidation or downward retracement. Price has also recently emerged from overbought based on the slow stochastic, with today’s reading of about 58 close to neutral. Volume though has been very low so far this month, possibly a reflection of the old adage ‘Sell in May and go away.’

Price action and Fibonacci


The ascending triangle from 15 May has now been broken to the downside. This signal in isolation would suggest more losses, but as noted above there are some important supports in view that might function as fairly strong barriers to downward movement. Today’s downward engulfing candle would also be an important sell signal but confirmation should be awaited from completion of the pattern if the same direction is clear in the main session.

The 161.8% weekly Fibonacci extension area based on last March’s losses continues to function as the key technical reference for US500. A significant break below this looks unlikely in the current fundamental environment. The 50% zone of the weekly Fibonacci fan projects a new high being reached at the end of July, but typical summer inactivity might render this invalid.

Technical analysis of US500: summary


On the whole, TA remains positive for US500 and would suggest that this week’s losses are just a short-term reaction to Wednesday’s news. Despite lower momentum, gains seem likely to continue over the next few weeks. Key fundamental factors looking ahead include monetary policy and especially more details about the timeline of tapering plus of course earnings season next month.

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