- Summary:
- Investors continue to drive the S&P 500 higher as they shake off coronavirus fears, but there is a feeling that a correction is not far off.
The S&P 500 has opened the week higher, albeit in muted trading as investors continue to shake off fears surrounding the coronavirus outbreak. The death toll from the coronavirus has surpassed that of the 2002 SARS outbreak. However, investors remain upbeat as most of the fatalities and new cases continue to occur within China and do not reflect a more globalized pattern.
Production plants in China continue to remain shuttered, with US company and iPhone hardware maker Foxconn joined the list of US firms that have closed down production in China “until further notice”. Some companies such as Tesla and General Motors have indicated their desire to resume production this week.
Read our Best Trading Ideas for 2020.
Technical Outlook for S&P 500
The technical pattern on the 4-hour chart reveals that the S&P 500 index is trading within a bullish flag pattern, which may point to a bullish continuation of price. However, investors are now starting to worry about an imminent market correction.
Today’s price movement is taking the S&P 500 beyond the resistance marked by recent all-time highs. Traders were unable to sustain these highs at the end of the last week after Friday’s underwhelming jobs report. The S&P 500 is currently trading at 3340.5 and is approaching the previous week’s highs of 3360.1.
We need to see two successive daily candles above the 3340.5 resistance, as well as a confirmation of the bullish break of the flag on the 4-hour chart by the same confirmation signal. This scenario will then allow the S&P 500 to target the 6 Feb highs at 3360.1, with the possibility for posting new highs if the market sentiment permits this.
On the flip side, failure to hold a sustained close above 3340.5 could be the trigger that sellers are waiting on. This move would need to be backed up by risk-off sentiment from further worsening of the coronavirus outbreak, as well as possible confirmation from the RSI indicator, where I would be looking for a divergence signal or a failure swing. This scenario will allow the S&P 500 to target the 3299.7 price area as initial support, as well as several short term support areas at 3284.6, 3263.6 and 3249.9. Medium-term support may also come into play at 3228.2 and 3216.5.