On the daily chart below for the S&P 500, we can see that the price has rallied through the key 4175 resistance the last week as we got positive news on the debt ceiling front. Going into the weekend though, the talks were said to have stalled, and we got a knee-jerk reaction lower in the S&P 500. The debt ceiling has always been raised and although there may be a very little chance that this time it won’t happen, the market is more confident on the former scenario.
Therefore, until this drama gets resolved, we may see a classic “buy the rumour” type of trade where the S&P 500 edges higher and higher on every good news and pulls back on the negative ones. Eventually, what comes next is the “sell the fact” trade, but that might be a few weeks ahead still.
S&P 500 Technical Analysis
In the 4 hour chart below, we can see that the 4200 high was also breached the last week, although the price quickly reversed as bad news hit the wires. This impulse to the upside led to the breakout of the almost one-month long range the S&P 500 was stuck into. The moving averages are crossed to the upside and the red long period moving average should offer support for the buyers in case the price pulls back to the broken resistance now turned support.
In the 1 hour chart below, we can see that the moving averages on this timeframe have crossed to the downside hinting to the prevailing bearish momentum at the moment. Although, this might turn into a major fakeout and thus the start of a downtrend in the S&P 500, it’s more likely that we are in a pullback before another impulse to the upside.
We can see that the price bounced on the 38.2% Fibonacci retracement level, and we have an even stronger support zone below it with the 4175 level and the 50% Fibonacci retracement level. That support area should be the last line of defence for the buyers. The sellers, on the other hand, will want to see the price breaking lower to start piling in and extend the fall towards the previous 4120 support.
