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Does the Heavy Selloff on the S&P 500 Signal the End of the Recovery?

S&P 500
S&P 500

The S&P 500 is lower on the day as risk aversion hits the US markets despite the drop in unemployment claims below the 1 million mark. Jobless claims came in at 881K, which was lower than last week’s number and less than the 955K predicted by market analysts. 

Today’s move comes as US markets have extended themselves with minimal fundamental backing. The coronavirus continues to spread, and there is still no vaccine in sight. Schools are set to reopen, and with no clear pathway indicating progress against the coronavirus, this event could pose additional market risks if cases in schools start to spike. 

Now, analysts at TD Securities have provided a gloomy outlook for the S&P 500 index, saying that a 3220 level is a more realistic value based on G20 Google mobility data. This forecast seems to be in tandem with historical trends for the S&P 500, which indicate that September has not always been a good month for the S&P 500. 

Putting the icing on the cake is the US ISM Non-Manufacturing PMI data, which show that the services sector in the US slowed from 58.1 in July to 56.9 in August; a figure which was also below market estimates.

The S&P 500 currently trades at 3489.5 or 2.55% lower on the day as at the time of writing. 

Technical Outlook for S&P 500

Today’s selloff represents a move borne out of the rejection at the channel’s return line. This move also indicates a failure of the break above the 3528.9 resistance, which sets price firmly on the path towards the channel’s trend line. A breakdown of the channel allows the price to test the 3393.5 support with 3335.5 and 3282.2 lining up as potential future support targets. 

On the flip side, a bounce on the channel’s trend line allows the price to retest the 3528.9 resistance, formed by the 100% Fibonacci retracement from the swing move of 23 March to 29 April.

S&P 500 Daily Chart