Bottom line: SPX500 bearish structure remains intact until prices stay below 3140 resistance, the March 03, 2020 highs. Bears might be preparing to resume lower again to print below 2180 levels.
Technical Analysis:
SPX500 remains in control of bears since 3400 highs in February 2020, as it continues to print series of lower lows and lower highs. A bear market rally is easy to be mistaken as an uptrend especially under volatile conditions. The recent rally towards the 2640/50 levels could be just one of those bear market counter trends, acting as a potential bull trap. If any aggressive long positions has been taken earlier it might be good to consider exiting.
According to the wave structure displayed sine the drop from 3400 levels, SPX500 seems to have completed 3 waves at 2180 levels. The counter trend rally has managed to retrace close to fibonacci 0.382 levels around 2610/40 levels. Until prices stay below the 2860 levels (past support), probabilities remain for yet another drop below 2170 to complete 5 wave drop. A meaningful corrective rally can be expected thereafter.
Hence, most traders might be willing to initiate fresh short positions between 2550 and 2650 levels, with a protective stop around 2900 respectively. The target potential remains below 2170 and could extend towards 1900 levels, going forward. Please note SPX500 could drop close to January 2016 lows around 1840 levels.
Alternately, if the drop from 3400 levels is complete, we could witness a continued rally past 2900 levels and taking out resistance at 3140 as well. This would confirm a major bottom in place at 2170 and that SPX500 might be a good candidate to be bought on dips. Having said that, probabilities remain remotely close to the above count.
Overall, we can expect the bearish trend to resume and SPX500 might be hearing below 2170 levels in the short term.
Prepared by
Harsh Japee, Technical Analyst.
SPX500 Chart
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