S&P: technical outlook

S&P: technical outlook

2020-05-14 • Updated

Fundamental background

Now that the stock market is making another tactical downturn, observers changed their tone and started ringing the alarm. Following Elon Musk, who said himself that Tesla shares were trading too high, a lot of market professionals and investors are now pointing to the fact that most chips are heavily overpriced.

Partly, that is due to largely disappointing earnings reports that came out during the last weeks (although most of the disappointment had been priced in before and a lot of companies actually outperformed the expectations).

Partly, that is due to the recent dim notes in the announcements from the side of the government, the Fed, and all the ruling political and economic circles. In short, the statement is that the Q2 would be “brutally painful”, which we already know.

Consequently, those who professed the second bottom in the stock market came back to power and are now going all out against the V- or U-shaped recovery. While they may be absolutely right as no one really knows how, if and when it would be, let’s take a technical or rather a graphical look at the chart of the S&P.

Technical outlook

We can see that indeed the upper border of the fluctuation channel tipped at 2,965 at the very end of April. The next high which we witnessed just a few days ago is already lower and follows the descending slope of the trajectory. In the meantime, the lower border of the channel has made its bend in the first part of April and was following a flatly ascending trajectory since then. Right now, with the S&P denting into the lower curve at 2,805, we are witnessing a decisive moment. Possibly, not the only one.

In the first scenario, the chart will cross the lower border of the channel and will go down. Probably, it would be the heaviest downturn outcome and may signal that the market is indeed planning to make a big dive.

In the second scenario, the S&P bounces upwards from that border to go up again and possibly reverse back down to test the lower curve again. And it is right there, at the collision phase where the upper and the lower curves are coming to meet each other, where the market will definitely show its true intention. If bearish moods are prevalent, we will see it over there. If bulls are stronger, that will be another big wave up. Prepare for both.  

S&P500H4 2.png

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