S&P 500 Gains On the Day, But Upside Remains Limited

Expiring futures and options contracts have brought on a heavy trading volume on the day, which has enabled the S&P 500 benefit from some bids around the 2400 price level. The S&P 500 is presently up by 1.3% as at the time of writing, having shed off some of the gains it made after posting intraday highs of 2506. 

Economists at Morgan Stanley have released their outlook for the S&P 500 index, which they feel will end the year around 2750. According to the Morgan Stanley outlook, 2550 – 2600 is being watched as a level for the index in an overshoot scenario, with more significant overshoot than anticipated being made more likely by a reduction in gross exposure by investors. 

This outlook captures the general feeling of analysts at major investment banks, who feel that the economic impact from the coronavirus could linger well into 2021. As indicated by one of ABN Amro’s Chief Economists, “…a strong recovery of the global economy is not on the cards until 2021.”

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Technical Outlook for S&P 500

Recovery on the S&P 500 continues to remain hesitant, with trading still hovering around the 2401.9 price area. Yesterday’s price candle closed below this price level, but today’s open gapped above it and is now putting it to the test. 

A closing penetration below this support line by today’s candle confirms the breakdown of this price level, which opens the door towards 2320.4, with 2273.2 (this week’s low) coming in as the next support level. 

On the flip side, if today’s candle can close above 2401.9, this will, in turn, keep the close of the weekly candle above the same price level, and provide hopes for an extension of the bounce witnessed this week on the weekly chart. Expectations for more considerable upside comes from the RSI’s higher lows on the daily chart, which diverges from the lower lows of the price candles. Extension of the bounce takes the S&P 500 towards the 2479.7 resistance, with the 5 Feb/2 April 2018 lows at 2550.7 presenting themselves as role-reversed resistance. 

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