The S&P 500 index is trading higher after the Institute of Supply Managers released its Non-Manufacturing PMI data that showed that economic activity in the services sector had dropped from last month’s reading of 52.5 to 41.8. However, the slump was not as bad as the markets had feared, as the actual number was better than the 37.5 that analysts had predicted.
A breakdown of the report showed a marked fall in the following components:
– business activity index: 22 percentage points drop to 26%
– new orders index: dropped 20 percentage points to 32.9%
– employment index: scaled back from March’s 47% to 30%
Only an increase in the supplier deliveries index to 78.3% saved the PMI number from dropping even further. All component indices that make up the Non-manufacturing PMI are given equal weighting.
This was first contraction in the ISM Non-manufacturing PMI data since 2009, ending a winning streak that spanned 10 years and 2 months. What a run!
The technical picture of the S&P 500 daily chart is an interesting one. First, notice the harmonic pattern that is super-imposed on the rising wedge. Price broke below the rising wedge only briefly and is yet to fulfil the price projection from the breakdown area. However, as the price recovers in a pullback fashion, we see that the next price target to the upside is the resistance zone which has 2937.7 as the floor (61.8% Fibonacci retracement), and 3028.3 as the ceiling. This is where the 141.4% Fibonacci extension of the harmonic pattern is found: point D. Point D would form a confluence with the apex of the rising wedge (which captured price action from 16 March to 30 April).
If price can scale this resistance zone, this invalidates both the wedge and the harmonic patterns, opening the door for the S&P 500 to attempt a push towards the 78.6% Fibonacci level at 3138.2 (which also matches a Kumo top).
If the price falters at the resistance zone, this brings point D into focus as a potential price reversal point, along with a continuation of the downside move from a pullback to the wedge’s apex. Price levels likely to be approached include 2844.3, 2796.9 (50% Fibonacci retracement level and another Kumo top), as well as the 11 March and 13 April lows at 2707.7. The downside option may coincide with a peaking of the Fear and Greed Index, especially if the index heads into the extreme greed area.