USA500: Range-bound market?

USA500, H4 and Daily

Global slowdown, tariff uncertainty, lower oil, Fed dovishness and yield curve inversion certainly all compounded the allocation out of stocks into bonds ahead of the closure of markets yesterday. The drop in yields and the inversion in the 3s-5s spread seems to have been the major catalysts for Wall Street’s better than 3% plunge, the action became circular with further weakness in stocks increasing demand for Treasuries.

Meanwhile, the trade developments remain in focus after already underpinning the sharp swings in markets over the first 2 days of the week, along with an ongoing recalibration of Fed policy expectations , where markets are now discounting a pause in the cycle, following a hike this month.

Hence, worries over curve inversion and the potential recessionary signal weighed on Equity market where trade concerns have resurfaced, shove the USA500 to a 2,695 low after tumbling through its 50- and 200-day SMA.

Despite the 0.4% gain noticed so far today, after the 3.2% loss yesterday, the index remains in a neutral to bearish outlook, with the formation of a Death Cross supporting the resurgence of the negative momentum in the near future.

Currently, the asset holds a floor at yesterday’s low at 2,695, which provides Support to the pair, as it also represents the confluence of 61.8% Fib. retracement level and the 61.8% Fib. extension from the rebound seen since November 26. Therefore, a break within the day, of this level, could drift the price to the next important area, at 2,620-2,630 area (FE 100 set since November 8 reversal, and the 5 consecutive low during 20-26 November).

Oppositely, in the 4-hour chart, the next intraday Resistance barrier holds at 2,754.50, which coincides with 20-period SMA, Thursday’s peak and also 50-day SMA. On a break of it, we could see the USA500 being boosted to 2-month upwards hurdle, at the 2,817.70-2824.00 area. As stated also in November, this area is a strong obstacle for the asset as is was retested 6 times so far and that renders it into a strong resistance area.

The daily momentum indicators are giving us a mix signal, however in the intraday chart, they present an increase of the negative momentum in the near future. RSI has flatted at 40 level suggesting consolidation of the USA500.  MACD lines crossed into the negative territory, supporting that downside momentum has advanced.

Nevertheless, the US markets and the government are closed for a day of mourning for former President Bush. Hence markets are expected to remain thinned.

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Andria Pichidi

Market Analyst


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