There has been an improved tone in the markets since the end of March amid the ongoing firming in risk-appetite that supported the US equity futures. Appetites have been whetted by rising optimism that lockdown measures will continue to be eased, allowing the domestic economy to gradually reopen. What had been an ongoing slashing of growth estimates also appears to have run its course, supportive of risk as the market has been spared frequent high profile downgrades of the near and medium term growth projections.
After Wall Street put in its best month since 1987 on those hopes, so far in May the indexes have continued to sag again on worries that the reopenings of the states will be slow and disjointed, that there will be a second wave of the virus, and that consumption and production won’t get back to normal this year. And adding to the uncertainties over the timing and extent of a bounce were weak data reports which started to capture more of the impacts and discouraged hopes for a quick, V-shaped bounce. Rather dismal outlooks from the Fed and ECB weighed on investor sentiment as well, even as the banks confirmed they are “all in” to support the financial markets. And finally, fears of resurgent US-China tensions added to the bearish tone as President Trump contemplates reparations.
Hence, after stocks suffered their worst quarterly declines since the financial crisis in late 2008, the second quarter looked to be a more favourable one. The USA500 rose 31% from its lows reached March 23, through April 29. However the closing on Monday May 4 below the 20-day SMA, and the decline by 6.5% from 2975 (April 30) triggered the attention of many analysts.
That said, we have seen technical strategists at JPMorgan Chase & Co. to say the index has likely formed a medium-term ceiling.
“The S&P 500 Index staged a bearish reversal week after moving deeper into the large confluence of resistance levels surrounding 2,900,” an area that likely caps the equity range through the second quarter, strategists Jason Hunter and Alix Tepper Floman wrote in a note Friday. “While the two-day pullback from that key resistance area is only tentative at this point, it at least marks a continuation of the trend deceleration pattern that started in mid-April.”
“A break below 2720 would confirm a short-term top. We are focused on two primary support areas, 2640-2665 and 2450-2485.”
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