SAMT Blog
S&P500-Reversal risk in summer
03. August 2023, by Bruno Estier
Technical Analysis
On July 27, the S&P500 gapped higher to 4598, extending to a high of 4607, but reversed down to a low of 4528, a previous support area, and finally closed at 4537, engulfing several previous trading days. While it is not visible on our weekly chart, this daily pullback may call the end of the linear rise of the S&P500 since the 4100 area.
A Green Path scenario displays a pullback in August toward 4500, followed by a retest in mid-October before the S&P500 could resume its stronger seasonal rise until year-end. This bullish path is comforted by the widening of market breadth, as shown by the rising Relative Strength (RS) of small caps versus the S&P500 since June, while the RS of the Nasdaq versus the S&P500 remains flat. A rise into the year-end is helped by the current strong momentum, displayed by the rising MACD and the overbought Stochastics since mid-May – a sign of a strong trending move.
A Red Path scenario is Bearish, with a dramatic decline toward Fibo 38% (4185) and a rising trend support. It is then calling for a lower low toward 4000 by mid-October, finding support near the Ichimoku Cloud. Both momentums would need to cross down suddenly in the coming weeks from an overbought status. The VIX, now at 13.33% (orange dotted line), would explode above 20%.
Given the wave pattern displayed from the top at 4818 up to now, the Red Path would certainly be a big surprise for many Bulls. Enjoy your summer…
About the author
Bruno Estier is an Independent Market Strategist and founder of Bruno Estier Strategic Technicals (bruno.estier.net). Based in Geneva, he is a global market advisor and technical analyst coach for professional traders and portfolio managers.
He is a past president of the Swiss Association of Market Technicians (SAMT) and served on the board of directors as chairman and secretary of the International Federation of Technical Analysts (IFTA). Bruno holds a MSTA from The Society of Technical Analysis (STA) in London and the CFTe and MFTA designation from IFTA.
He worked for 12 years as a technical analyst with JP Morgan in Zürich and Paris and 10 years with Lombard Odier & Cie in Geneva. He earned an MBA from The University of Chicago Graduate School of Business and a Masters in Economics from the University of Saint Gallen (HSG).
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