S&P 500 Index Up On the Day, But On Very Shaky Ground


The S&P 500 is up on the day, but only just as the US Durable Goods Orders data showed disappointing figures. 

The Durable Goods Orders came in at 7.3%, which was more than halfway lower than the previous month’s strong 15.7% reading. The core component of the report (ex. transportation) came in at 3.3%, which was lower than the market consensus of 3.5% and lower than the previous month’s revised figure of 3.7%. 

However, the poor results have been partly offset by upbeat sentiment on Wall Street, as markets expect nothing short of a new round of stimulus from the Fed and the US Congress. However, this does not remove the fact that the 2nd quarter has proven to be a difficult one for the US economy, as the economic data released this month have been mostly disappointing. 

Fund manager Michael Gayed is of the view that the market could be in for another selloff. Should investors be concerned? Gayed’s ATAC Rotation Fund is up 60% on the year after Gayed called the lows of March accurately. Perhaps a look at the chart may indicate why he is issuing such a warning, which he has attributed to poor handling of the coronavirus pandemic by the government.

Technical Outlook for S&P 500

The index continues to trade within the rising wedge pattern (a bearish reversal pattern), which is what may have influenced Gayed’s call. Today’s candle bounced off the lower border of the wedge but needs to break above the 3228.4 resistance to be able to return to the wedge’s opposing edge. A break above 3256.1 allows the pair to target 3335.5. The attainment of the 3335.5 target invalidates the wedge pattern. 

On the flip side, failure to break the 3228.4 resistance puts the wedge’s lower border under pressure, and if the edge breaks down, we could see the S&P 500 sliding towards 3137.0. A further decline below this border brings in 3070.8 into focus, with 3028.3 (ceiling of support wall) not too far behind. However, the selloff that Gayed has spoken of will only be feasible if the support zone gives way. A drop below the 2961.4 floor allows for the possibility of a decline to 2844.3, or even 2707.7 if selling pressure persists.

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