The S&P 500 index is down 0.29% on the day, and its bearish performance on a low-volume trading day is not surprising. Many global markets took the plunge on the day after global outrage at China’s proposed national security law that will enable it to intervene more forcefully in Hong Kong if pro-democracy fervour continues unabated.
It is Memorial Day weekend in the US, and trading volumes are low on the day. For S&P 500 investors, next week could hold answers to many posers hanging over the market. It is not just the issue of China’s National Security Law, but also the situation with the coronavirus at a domestic level that investors are bothered about.
There are worries of a new wave of coronavirus infections as the US economy opens further. US President Donald Trump has ruled out any new lockdowns, preferring instead to “put out the fires” as an alternative approach. Also worrying for investors is the decision by Beijing not to set a growth target, a departure from the practice, which is the norm at the NPC/CPPCC meetings. This leaves some questions as to the trajectory of China’s GDP, with the attendant implications on commodity markets and currencies/stocks directly linked to China’s economy.
The S&P 500 has had a fantastic recovery run on the back of the Fed’s stimulus and upbeat sentiment as the US economy reopens. But recent price action close to the resistance zone I identified in previous analyses on the S&P is starting to show signs of plateauing. So far, this week’s price action has consistently shown candles that have been unable to make any headway into the resistance zone which has 2961.4 as the floor and 3028.3 as the ceiling. These are the price levels to beat for buyers.
If the S&P can break above the resistance zone, it could be poised for a significant run towards 3137.0 (2 December 2019 and 4 March 2020 highs).
Above this level, we could see the 88.6% Fibonacci retracement from the swing high of 20 February to the swing low of 18 March forming a new resistance at 3257.6. Attainment of this level brings the S&P 500 to within a touching distance of the 2020 highs.
On the flip side, failure to break the resistance zone could produce a considerable selloff, if the technical patterns on the charts are anything to go by. We have a sizeable bearish pennant which encapsulates price action from the 2020 all-time peaks to the current price candles. We also have the harmonic pattern with point D’s potential reversal point right within the resistance zone. 2844.3 could be the first of several targets if sellers seize control once again, with 2707.7 and 2656.1 (38.2% Fibonacci retracement) forming other potential downside targets.