S&P 500 Stages Mild Intraday Bounce, But Upside Remains Limited

Dow Jones
Dow Jones

The S&P 500 index has staged a mild intraday recovery from overnight lows but still sees further upside movements quite limited as the number of new cases and deaths continues to rise in the US and across the world from the coronavirus outbreak.

The attention of the world markets has shifted firmly to the US and how it responds to its massively expanding coronavirus outbreak. With 1524 new cases as at the time of writing and 458 fatalities out of a case count of more than 35,000, the US is rapidly climbing up the list of the most affected countries from the coronavirus outbreak. 

Goldman Sachs has warned of severe layoffs and increase in unemployment in the coming months, as state governments implement lockdowns. Saint Louis Fed President James Bullard hints that unemployment could spike to 30%, along with a 50% GDP drop if lockdowns continue for an extended period. US lawmakers are yet to agree to a $2trillion stimulus package that will provide bailouts for airlines and small businesses while giving cash to Americans. These factors continue to weigh heavily on markets, with the Fear and Greed Index registering at 8. This is slightly higher than last week’s figure, but still shows markets in a state of extreme fear. 

The S&P 500 is currently down 2.29% on the day, but has been able to bounce off intraday lows and is currently trading at 2222.8. 

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Technical Outlook for S&P 500

The 4-hour chart shows the shallow buying volumes which have enabled the S&P 500 futures to bounce off the intraday low at 2177.8. The March 18 low at 2273.3 forms the next resistance, but we could see more critical resistance at the March 13 low of 2404.2, which is also where the 23.6% Fibonacci retracement from the March 3, 2020 swing high to the March 22, 2020 swing low resides. 

The intraday bounce comes off the lower border of the descending channel. Further price action, therefore, suggests a continuation of the rebound towards the opposing edge. A potential breach of the channel’s upside border could open the door for a further recovery towards the 2544.3 resistance (38.2% Fibonacci level and the high of March 13 acting in role reversal), with the 2567.5 price level (top of March 12 and 50% Fibonacci area) establishing itself as a potential target. 

On the flip side, we could see a further weakening of the S&P 500 towards the November 2, 2015 and May 16, 2016 highs at 2106.2. This move would require today’s intraday low to be taken out decisively. Also, further strengthening may provide opportunities to sell on rallies, since the prevailing sentiment continues to remain bearish. 

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