SPX500 Remains Bearish Against 3400 Resistance

26 June 2020

SPX500 is setting up for a major turn lower towards 2200 mark, going forward. Another round of selloff, potentially larger and sharper might be soon on its way as bears remain poised to be back in control. Watch out for a turn from current levels or from 3150 mark, going forward.

SPX500 had dropped after carving a major top around 3400 levels on February 24, 2020. The indice had given up almost 35% by dropping towards 2200 mark on March 23, 2020. This was in line with major global indices including the Dow Jones, DAX, FTSE and others.

Also note that the drop had sub divided into 5 waves, marking the first larger degree impulse wave at 2200, Wave (1) here. As expected, a religious counter trend followed thereafter. Please note that the corrective phase was that of a zigzag (5-3-5), labelled as A-B-C, Wave (2) on the chart here.

Furthermore, Wave (2) terminated around the 3230 mark which is just above the fibonacci 0.786 retracement of Wave (1). This is a typical guideline of the wave principle: Wave (2) may retrace Wave (1) as deep up to the fibonacci 0.786 levels, but it must stay below the beginning of Wave (1). In our case it is the 3400 mark.

Bottom line: Until SPX500 remains below 3400 resistance, the trend remains bearish. Going further, the drop from 3230 towards 2965 might be the beginning of a larger degree Wave (3). If the above counts are correct, SPX500 would ideally stay below 3230 as well.

Most traders might be willing to initiate fresh short positions as close to 3100/50 mark with a protective stop above 3230 (ideally 3400). The projected downside target remains below 2200 and 1750 respectively. Only a break above 3400 violates the bearish structure.

Prepared by
Technical Analysis Team

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