Are Sellers About to Seize Control on the S&P 500 Index?

Lukewarm manufacturing PMI data, US-China tensions and languishing stimulus plans are all adding up to ensure that the S&P 500 got off to a poor start on the day. 

US-China trade tensions were ignited earlier in the week when the US government identified two alleged Chinese hackers as being responsible for targeted cyber-attacks against medical and research facilities involved in coronavirus treatment research. A follow-up to the accusations saw the US ordering the closure of the Chinese consulate in Houston, after claims that one of the accused individuals is hiding out at the Chinese consulate in San Francisco.

China has responded by ordering the closure of the US Chengdu consulate. Reuters quotes Chinese foreign minister Wang Yi as saying that “No country with a conscience or independent spirit will side with the US against China.”

The comments appear to have soured sentiments on the S&P 500 index, already reeling from lukewarm PMI data and bearish sentiment as a result of the domestic coronavirus situation. 

The S&P 500 trades at 3221.8, or 0.43% lower as at the time of writing.

Technical Outlook for S&P 500

The index is now lodged in a rising wedge pattern on the daily chart, with price testing the lower borders of this pattern. The expectation is for the pattern to resolve with a downside break, which would also need to break below the 3228.4 former resistance now acting as support.

If this move is actualized, then we could see price targeting 3137.0 with possible downward extension to 3070.8 to complete the measured move from the pattern’s breakdown. A move to 2844.3 is only possible if the support wall between 2961.4 and 3028.3 gives way. 

Conversely, a break above the 3256.1 price level (88.6% Fibonacci retracement of the 19 February to 23 March move) allows the price to breach the wedge’s upper border, which would invalidate the pattern. This move would provoke a higher high, which confirms recovery. This recovery could then attempt a strike at 3335.5, with the 3400 psychological resistance located further down the road.

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S&P 500 Daily Chart

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