The
S&P 500 selloff has been remarkable with key levels being breached with no
hesitation as the sentiment turned negative. The reason for the selloff is
unclear as the US data has been supporting the soft-landing narrative but the sharp
slowdown in the Chinese economy is expected to infect the other advanced
economies and drag the global economy down. Moreover, the quick rise in long
term Treasury yields is also tightening financial conditions with real yields
approaching the levels last seen during the Global Financial Crisis of 2008.
It’s a tough environment for sure, so the technicals will be very helpful in
managing the risk.
S&P 500 Technical
Analysis – Daily Timeframe
S&P 500 Daily
On the
daily chart, we can see that the S&P 500 extended the fall beyond the trendline and it’s
now eyeing the key support at 4324.
That’s where we can expect the buyers to step in more strongly with a defined
risk below the level and target again the high. The bias for now remains
bearish though as the market keeps printing lower lows and lower highs and the moving averages are
crossed to the downside.
S&P 500 Technical
Analysis – 4 hour Timeframe
S&P 500 $ hour
On the 4 hour chart, we can see that if we get a
bigger pullback, we will have a strong resistance around the 50% Fibonacci retracement level
where we have the confluence of the
broken trendline that may act as resistance on a retest and the downward
trendline. That’s where we can expect the sellers coming in more aggressively
to extend the selloff beyond the 4324 support.
S&P 500 Technical
Analysis – 1 hour Timeframe
S&P 500 1 hour
On the 1 hour chart, we can see that minor
downward trendline has recently been breached but the price couldn’t rally past
the previous swing high level. If the price falls below the trendline again, we
can expect more sellers piling in to extend the fall into the 4324 support. On
the other hand, if the price bounces and breaks above the swing high
resistance, we can expect the buyers jumping onboard and take the price into
the 50% Fibonacci retracement level.
Upcoming Events
This week is
pretty empty on the data front with just the US PMIs scheduled for Wednesday
and the US Jobless Claims for Thursday. We seem to be at a point where good
news is bad news because of the Fed’s stance and bad news is bad news because
the slowdown in global growth will lead to a recession in many countries
included the US. Remember also that it’s the Jackson Hole Symposium week, so we
will get comments from Fed officials again and especially Fed Chair Powell who
is scheduled to speak on Friday.