Why Did Credit Suisse Predict a Deeper Correction of the S&P 500 to 4315?

Credit Suisse has provided an update to its outlook on the S&P 500 index, following the FOMC minutes release, which indicates that the Fed could start shutting off the stimulus tap in late-2021. Credit Suisse views 4315 as becoming the new target of the renewed correction on the S&P 500 index if sellers achieve a closing penetration below 4425 on the weekly candle.

Fundamental support for this move comes from the tapering projections and Chinese weakness, sending a risk-off message to stocks and indices. The August lows at 4381/4373 are a price pivot that must give way to support this outlook.

Credit Suisse will maintain a bearish view as long as 4424/4426 and 4462 remain the viable resistance targets. This means that a break of price above these barriers invalidates the bearish sentiment and allows for a bullish continuation.

Technical Levels to Watch

With the release of the FOMC minutes that paved the way for early tapering, the S&P 500 index broke below the smaller ascending channel, opening on Thursday with a downside gap that found support at the 4368.58 price mark. Price has bounced from this level in a push to close the gap.

If the active daily candle closes above the 4393.03 price mark, the integrity of this level as support is preserved. This scenario may allow the bulls to reassert a move that targets 4422.92, where the channel’s lower border provides additional resistance. Price would need to surmount this level and the 4475.23 price mark to set new highs on the index.

However, if the price fails to surmount the 4393.03 or 4422.92 barriers, we could see new offers that may target a breakdown of 4368.58. If this level capitulates, 4324.44 and 4275.94 become new targets, with 4300 serving as a potential pitstop along the way.

S&P 500 Index: Daily Chart