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S&P 500 Still Consolidating: Pullback Cannot Be Ruled Out

As the earnings season for the Q1 2020 period comes to an end, traders and investors may have to prepare for newer fundamentals as well as technical plays on the US markets, especially the S&P 500 index. As markets remain closed on this Memorial Day, the S&P 500 index futures continue to display the consolidation that started to form at the identified resistance zone located around the 3,000 price mark last week. New fundamentals are developing on the US-China front. The war of words continues on both sides. According to Reuters, the US plans to blacklist 33 Chinese entities via the US Commerce Department for what it says is complicity in “human rights violations and abuses committed in China’s campaign of repression” against the Uyghurs, as well as support for procurement of items used by the Chinese military. China has responded by asking the US not to start a new Cold War after reports emerged that the US is considering conducting nuclear tests. These comments add to a list of issues that have created tensions between both countries: the US calls for compensations for the coronavirus outbreak, China’s national security law on Hong Kong after describing protests as “acts of terrorism”, and threats of new trade sanctions.

These headlines could dominate the fundamentals for the S&P 500 once the markets resume, creating risk-on/risk-off sentiment plays as well. 

Technical Outlook for S&P 500

The S&P 500 futures have registered a slight 0.24% gain on the day on light trading volume. Last week’s piercing pattern ushered in a bullish run before the market consolidation at the 2961.4 – 3028.3 price area. This price area also marks point D of the harmonic pattern: a potential market reversal point. 

The bearish pennant (in purple) and the harmonic pattern are the strongest technical indications yet of a possible price pullback. A reversal from point D targets 2844.3 as the initial support, with the 50% retracement at 2796.9 coming closely behind. The low of 11 March 2020 at 2707.7 must also be considered as a possible support target.

Conversely, bulls would need to see a break of the resistance zone for confirmation of price advance towards 3137 (78.6% retracement of the 19 February to 18 March lows) as well as the 3257.8 price level. 3400 remains the all-time peak to beat. Whether this level can be achieved this year as the US economy opens up remains to be seen. 

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S&P 500 Daily Chart

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