SPX500 had pushed higher through 3330 mark yesterday, inching closer towards the 3400 resistance. The indice has managed to cover all losses since the February-March collapse, and has managed to reach above fibonacci 0.88 retracement, just a few points shy of all-time highs.
SPX500 probable wave counts are as follows: The drop from 3400 through 2200 was clearly sub divided into 5 waves, labelled as Wave (1) on the chart here. This has been followed up by a corrective wave A-B-C, which has reached 3330 levels.
Believe it or not, the behaviour of counter trend rally Wave (2) is in line with the mass psychology theory as described by R.N.Elliott. Wave (2) remains valid, until it terminated below Wave (1) peak at 3400 levels. At times, Wave (2) pushes deep as in this case, but stays below the extreme.
If the above proposed structure holds, SPX500 should stay below 3400 mark and reverse sharply lower from here. A break below 3200 initial support would confirm a meaningful top in place and accelerate further lower towards 2750 at least, as Wave (3) unfolds.
SPX500 futures are trading lower towards 3325 levels as we prepare to publish this article update and might be looking to break below 3200 in the near term. Please note that SPX500 potential for Wave (3) remains below 2200 levels, going forward.
Most traders might be looking to initiate fresh short positions around current price at 3325, with protective stop above 3400 and projected targets towards 2200 and 1750 respectively.
Technical Analysis Team
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