S&P 500 Struggles for Direction As US Markets Face Headwinds

Summary:

S&P 500 struggles for direction as the US markets face significant headwinds from coronavirus data and issues surrounding the US economy.

The S&P 500 is trading virtually unchanged, albeit with very slight gains on the day on the back of positive coronavirus vaccine news. More positive data from clinical tests performed by Pfizer and BioNTech on their experimental coronavirus vaccine candidate boosted market sentiment.

Also, Oxford announced that the Phase 1/2 trials of its immunogenic coronavirus vaccine candidate showed a safe and well-tolerated response.

However, optimism on the S&P 500 continues to face significant headwinds from the rising coronavirus case counts in the US. A downgrade of Moderna Inc and a pessimistic outlook of the S&P 500 by JPMorgan also dampened sentiment. Analysts at JPMorgan say that Chinese data and news of coronavirus tests have been the trigger for the rise in the S&P 500. This view disputes that US fundamentals may have helped in the recovery of the index.

JPMorgan’s analysts also view Moderna’s stocks as overvalued, and that it would have “difficulty justifying more upside” as a result of the dynamic nature of the pandemic.

The S&P 500 is trading at 3217.8.

Technical Outlook for S&P 500

The index is close to challenging the support at 3228.7, with the price action now narrowing into a rising wedge. The picture looks bearish on the chart, given the pattern and the presence of the topping formation at this price level. Only a break of this price to the upside will re-establish the recovery on the S&P 500, as this would form the higher highs needed to complement previous higher lows for the uptrend to resume. Such a move could them aim for 3335.5 (24 January high).

If this does not happen, then we could see price rejection at the 3228.7 resistance, which would initiate a move to the wedge’s lower border. The rising wedge is expected to end in a breakdown of the wedge. If this breakdown is achieved, then we could see a move towards 3070.0, with the support wall which has 3029.6 as its ceiling forming the next target. Only a breakdown of the support wall will allow 2844.9 to become a new downside target, with 2800.00 (24 April and 4 May lows) coming in close as the next target.