SPX500 prepares to resume lower towards 3700 mark

Technical Analysis:

SPX500 seems to be ready to resume lower towards 3700 levels in the next few weeks. The indice had earlier rallied through 4245 levels carving a potential meaningful top. The decline thereafter was an impulse, clearly unfolding into 5 waves towards 4036 levels.

SPX500 might have carved its first impulse lower indicating a beginning of a trend reversal. Also note that the subsequent rally towards 4232 had unfolded into 3 waves, which is corrective. It was a standard flat labelled as A-B-C on the chart here.

If the above structure holds well, SPX500 would ideally stay below 4232 mark and continue drifting lower towards 3900 and 3700 levels respectively. The corrective rally had reached up to fibonacci 0.786 retracement of the earlier drop.

Looks like Waves 1 and 2 are terminated at 4036 and 4232 respectively. If correct, Wave 3 might unfold anytime soon. Alternately, if lower degree wave iv terminated around 4166 yesterday, SPX500 might carry above 4232 to terminate Wave v of C, before reversing lower.

The indice might be preparing to produce a bearish reversal at a larger degree and hence potential remains for a drop much below 3700 mark going forward. We do not rule out the possibility for March 2020 lows at 2200 being re-visited.

Most traders might be preparing to initiate fresh short positions or hold existing ones from 4210/20 levels. A break below 4030 will confirm that bears are back in control and are here to stay for long. Watch out for a break below 3860 in the near term.

Prepared by

Finacademy Technical Team