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S&P 500 – Toppish below 2170/2180

S&P 500 – Toppish below 2170/2180

(Chart 1)

(Chart 2)

(Chart 3)

(Chart 4)

(Chart 5)

As seen from the year to date performance (ending 21 May 2015) of the major and Asian stock indices (chart 1), the S&P 500 has recorded a lacklustre performance of 3.53%. This dismal performance of S&P 500 is way below its counterparts such as the Euro STOXX 50 (+17.50%), Nikkei 225 (+16.05%) and Shanghai Composite (+35.19%) despite its improving economic conditions versus Europe, Japan and China.

Let's us dissect the S&P 500 from a technical analysis perspective to gauge its future expected performance.

Key elements

  • The S&P 500 is now trading close to the upper boundary (resistance) of its long term ascending channel (in light blue) in place since 02 October 2011 low at 2170/2180 (see weekly chart).
  • The 2170/2180 resistance is a significant zone as it confluences with multiple Fibonacci projection clusters (see weekly & daily charts).
  • The long term RSI oscillator continues to flash a bearish divergence signal since late December 2013 which indicates weakness in upside momentum in price action of the Index (see weekly chart).
  • Another weakness can been seen in the recent price action since late December 2014 as the Index has traced out an impending bearish “Ascending Wedge” configuration (in dark blue) with its upper boundary (resistance) at 2140/2150 (see daily chart )
  • The lower boundary (support) of the “Ascending Wedge” configuration stands at 2100 (see daily chart).
  • The significant supports are at 2040 which is the 200-day Moving Average (in orange) follow by the lower boundary of the long-term ascending channel (in light blue) at 1980 (see daily chart).
  • Market breadth has started to deteriorate since 24 April 2015 as the NYSE cumulative Advance/Decline line has traced out a lower “high” despite a higher “high” seen in the S&P 500 (see chart 2).
  • The Biotechnology and Utilities sectors are considered as sector leaders because of their superb performance seen last year (+33%) and (+30%) respectively. However, their latest relative strength charts by taking the respective ETFs (exchange traded funds) of the Biotechnology sector (IBB) and the Utilities sector (XLU) against the S&P 500 (SPY) have started to exhibit bearish technical elements. This weakness seen in the sector leaders warrant caution on the broader market (see charts 3, 4 & 5).

Key levels (1 to 3 months)

Intermediate resistance: 2140/2150
Pivot (key resistance): 2170/2180
Support: 2100, 2040 & 1980
Next resistance: 2335

Conclusion

The S&P 500 is coming close to a key inflection level of 2140/2150 with deteriorating technical elements. As long as the 2170/2180 pivotal resistance is not surpassed, the Index faces the risk of a significant "mini correction" of 5% to 6%. A break below 2100 is likely to add impetus for this potential steep decline towards 2040 before 1980.Do note that the long-term bullish trend is still intact (see monthly chart).

On the other hand, a clearance above 2180 is likely to invalidate the bearish view to open up scope for a multi-month upside movement to target the next resistance at 2335.

Disclaimer

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kelvin_wong
Kelvin Wong, CFTe

Chief Technical Strategist (Asia), City Index

Kelvin is professional technical analyst with extensive experience in stock indices, equities and foreign exchange. Kelvin employs a combination of fundamental and technical analysis and specialises in utilising Elliot Wave and Fibonacci analysis to pin point potential reversal levels in the financial market. Prior to joining City Index, Kelvin has traded actively and provided investment advisory for institutional traders/investors such as Deutsche Bank, Credit Suisse, ANZ and Goldman Sachs. He has also conducted technical analysis related trading workshops and seminars for thousands of private traders in Singapore and Malaysia.