S&P500 trading scenarios as price action awaits CPI inflation data
Traders are reminded that US Indices can now be traded in rands from a local account
S&P500 (US 500)
Technical analysis indications:
The US 500 index remains in a long-term uptrend as deemed by the price trading firmly above the 200-day simple moving average (blue line)(MA). We have however seen the 20MA (redline) crossing below the 50MA (green line) highlighting that a correction of this long-term uptrend is underway.
The stochastic has started to move out of oversold territory. This implies that the correction may be nearing an end. This signal while conflicting with the bearish crossover of the 20MA and 50MA, is a signal aligned with the long-term uptrend still in place.
Over the last four days, the price is consolidating between levels 5800 and 5850.
In summary:
- The long-term trend is up
- There has been a short to medium term correction of this longer-term uptrend
- In the very near term the price is consolidating out of oversold territory
Interpretation
The long-term uptrend still suggests keeping a long bias to trades on the index, and while there is some evidence that a correction of this trend may be nearing an end (very short-term consolidation from oversold territory), this has not yet been confirmed
Trading scenarios:
Waiting for upside break
Traders might look for confirmation that the correction has ended and that short term gains are resuming in line with the longer-term uptrend on a break above resistance at 5850. Preferably we would like to see confirmation with a close above the 5850 level on a daily chart. In this scenario, 5975 becomes the initial upside resistance target from the move, while a close below the 5800 level might be used as a stop loss indication. This trade scenario would provide roughly a risk to reward ratio of 1:2.5 (depending on the initial close level above 5850).
Downside break and waiting for reversal
Should the price not break range resistance and instead proceed to break support at 5800, traders might prefer to wait out weakness and look for a bullish price reversal closer to the 5665-support level for long entry. Should this scenario present itself, we will update guidance accordingly with targets and failure levels.
Reassessing trade bias
Only if the price was to correct further and start trading below the 5665-support level and 200MA, would we reassess out long bias to trades on the SP500 index.
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