Chart Of The Day: S&P Bulls And Bears Battle At Key Juncture
Fawad Razaqzada | Jun 26, 2020 06:29
This article was written exclusively for Investing.com
Without a doubt, the major concern among market participants right now is the alarming spread of the coronavirus in the US, which shows no sign of easing, as global cases also continue to rise. Thursday saw a record 37,000 new cases recorded in the US, which broke the previous peak in April. There is a risk we could see even more cases today and over the weekend, which could mean more states may reverse plans to reopen. The end result would be more economic pain, slashing the likelihood of a speedy recovery further.
Given the above risk, doubts remain as to whether the US stock markets will be able to add onto their gains made Thursday, when a late-day rally saved the day and saw the indices close in the positive territory. Index futures fell back in the early hours of Friday, before rebounding slightly at the time of writing - mirroring the price action we have seen all week.
Overall, concerns over the virus outbreak in the US have so far been offset by ongoing support from central banks. However, with the markets sharply off their March lows, it is logical to think that the impact of stimulus is probably priced in by now. So, if we see any further sharp increases in virus cases, then this could upset this balance and cause the indices to potentially correct.
From a technical point of view, S&P 500 futures, featured in the chart above, along with the other major global indices, have been struggling since the start of the second week of June. The index hit resistance around the 3210/15 area, formerly a level of support before the lockdown and we saw a sharp sell-off from there, before the index rebounded a few days later when it found support around the 200-day moving average. Since then, price action has been very choppy.
So far, the bullish trend looks intact despite the recent struggles as the index is holding its own above the 200-day average and a rising trend line.
However, it is worth watching the S&P closely, as a clean break below Thursday’s low of 3005 would probably signal the start of a short-term bear trend. If that happens, we may see a sharp drop in the coming days, as weaker hands on the long side are forced to liquidate. Conversely, if the index manages to clear resistance in the shaded region on the chart around 3080-3130, where we also have a short term bear trend converging, then this could pave the way for fresh technical buying in the week ahead.
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