Bottom line: SPX500 long term outlook remains bearish against the 3600 handle. The indice has rallied back through 3430/40 levels yesterday and is trading close to resistance. Bears might be inclined to take control back from here and push prices lower towards 2500 and 2200 over the next few weeks.

 Fundamental Outlook:

SPX500 whipsaws in the past two trading sessions leaving investors ambiguous and hopeful over another stimulus. The indice had dropped sharply from 3430 to 3340 on October 06 only to reverse the next day. As discussed earlier, investor sentiment remains more fragile over US Presidential elections, another round of COVID-19 infections and the expected economic recovery.

Technical Analysis:

SPX500 bulls returned sharply yesterday after a dramatic collapse the day before. The indice is trading back above 3425 mark and could be pushing through 3450 zone. Bears might remain inclined to take control back from 3440/50 potential resistance zone.

SPX500 had peaked around 3588 early September and reversed sharply through the 3200 handle in the next few trading sessions. The indice has worked upon its bearish boundary between 3600 and 3200 respectively and managed to pull back towards 3420/30 handle.

Also note that fibonacci 0.618 retracement of the above drop is seen through 3440/50 zone as well. Hence probability remains high for a bearish reversal if bulls manage to push through the above zone. A break below 3200 handle would accelerate further towards 2500 and beyond.

SPX500 had rallied from March 2020 lows around 2200 mark, towards 3588 highs in September. The entire rally had unfolded as an impulse wave. Even if the indice were to produce just a corrective drop, prices might reach the 2700 handle over the next few trading sessions.

Either way, most traders might be preparing to initiate fresh short positions around 3440/50 resistance zone, with protective stops above 3600 levels and projected target towards 2700 levels at least. Only a break above 3600 mark would change the structure.

Prepared by

Harsh Japee, Technical Analyst.

SPX500 Chart

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