S&P : are we clear of the new lows danger?

Gold technical analysis
February 26, 2016
Forex Review for February 29th.
February 29, 2016

Simply put no…we are not clear of the danger of making a new downward move towards 1750-1700 area in the S&P.There are even more bearish scenarios possible, but for now we focus on the most probable one. The decline off the All time highs to August 2015 lows is clearly corrective. This is most probably a wave A formation and the 1st part of the decline. Wave B followed  and trapped lots of bulls during the steady rise towards 2100.

SPXLONGTERM

In our first chart we see the monthly continuous contract of SPX. Price has broken out of the bullish channel while the stochastic oscillator and RSI are turning downwards from oversold levels. This implies more downside should be expected until the oscillators reach oversold levels. It is important for this bearish scenario to succeed SPX to stay below the red trend line resistance. This resistance is at 2080 now.

SPXLONGTERM2

The bearish scenario will be canceled if  we break above the red trend line. On the other hand, a break below 1850 will confirm we are heading towards new lows at least towards 1730-1750 where the 38% Fibonacci retracement from the 2011 lows where we also find the monthly Kumo (cloud) support.

spxweekly

On a weekly basis my oscillators are oversold and turning higher. This is a bullish sign. However price is below the weekly Kumo (cloud) and this is important resistance (1970-1980). A rejection at the weekly Kumo will be a bearish sign. Increasing the chances of a new low. We should also note that at 1985 we find the 61.8% Fibonacci retracement of the decline from last November highs.

SPXD

The Daily chart above shows an alternative wave count that suggests a new low should be expected in SPX. This scenario is canceled if price overlaps wave 1 low at 1997.  The oscillators are either in overbought levels or very close to entering the overbought zone. In Ichimoku terms, trend is bullish as price breaks above the Kumo (cloud) and the tenkan-sen has crossed the kijun-sen.

SPX4H

In the 4 hour chart we have bearish divergence signs. If price breaks below 1887 then I’ll be sure the rise is not impulsive. Short-term support at 1940 area is the 1st big test for the bullish wave count from the February lows.

Concluding, I do not believe the entire correction that started from last years All time highs is complete. There are many indicators that point to a bigger bearish picture for SPX towards 1600 and lower, but the wave formation of the decline, specially the 1st part of the decline to August 2015 lows, is not impulsive. On the other hand the topping formation as can be seen in the 1st monthly chart, signals that we should be heading towards Kumo monthly support at 1700 which coincides with the 38% Fibonacci support at 1720 from 2011 lows. As long as we are below 1970-200 I believe we should be medium-term bearish, while as long as we are below 2080 we should be long-term bearish, at least until our 1720-1750 goal is achieved. At the same time we should not forget the possibility of a longer-term top formation as the NASDAQ index suggests after making 5 waves down from its highs ( SPX and DJIA did not follow). Could it be the case that SPX and DJIA made a truncated 5th wave? Is it possible that the top was in past November and not in the past May? If this is the case, we have lots of room to fall.

NASDAQ

That is all from me, thank you for taking the time to read my post. Take care

Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.