S&P500 Struggles At The Highs

A 6% rally in less than two weeks is clearly a victory for S&P bulls but, with key resistance now close overhead, risk reward may now be swinging back towards the bears.

It’ still touch and go as to whether we’re seeing a volatile top play out or if this is the beginning of a volatile recovery. But most can agree that equity markets have been turbulent of late. Not helping sentiment today is the lack of solid details surrounding the Trump-Xi truce, which is sending yields and shares lower whilst the yen and gold trade higher.

Switching to the S&P500 daily chart, yesterday’s gap higher looked like a promising start to the week for bulls. Yet their inability to extend gains and close near the open price resulted in a rikshaw man doji, leaving them in a weaker spot than they envisaged. Furthermore, this near-term reversal pattern materialised before even reaching 2816.94 resistance, where another rikshaw man and bearish pinbar reside.

If the S&P500 opens beneath 2773.38 and extends losses, we’ll have an abandoned baby reversal pattern to contend with. If support holds for another session or two before gapping lower, the index could form an island reversal. Furthermore, these scenarios become even more bearish if they gap beneath the 200-day average. It’s possible the 200-day average could act as support, but its relationship as support in recent weeks has been shoddy at best.

With the index remaining in such a choppy state, then range trading strategies are preferred until a clearer trend develops. We’d want to see a break above 2816.94 before seeking bullish setups but, with futures markets and yields pointing lower, bearish reversal patterns around current levels and swings in-excess of 6% on this index, further downside may be the path of least resistance over the near-term.