May 8 Technical Outlook for the S&P 500
The S&P 500 may be on its path to make a big move although we don't know for sure in what direction. The Index has been playing around within shot distance of its historical maximum and the important 1360 support level given by the upper line of the Fibonacci indicator.
The level we are experiencing right now was last time tested back a year ago, in May 2011. Since then, the Index went down and up, breaking up the level during 2 months from March to April this year, came back and its being bouncing around in a tight range of around 60 points from a high of 1415 and today's low of 1355.
The reasons to believe the Index is getting ready for a big move are given by the current pattern, the bigger picture and the overall indicators. Getting started from the bigger technical picture, the S&P seems to be loosing its ability to hold on to the (until now reliable) support level of 1360.
As we speak, the Index is down over 1% for the day and seems as if it wants to break down the current formation. Talking about the formation, the VVV - Triple Bottom formation - is one of the most reliable reversal formation out there. If the Index holds at this level and rebounds back up, it may be expected a continuation trend going up for an extended period of time.
What the chart is telling us right now is that the S&P is loosing its battle to hold on and rebound and Indicators are confirming the dim picture. Some important Moving Averages are converging and crossing down and the RSI indicator shows a reading below the 50 level, which normally means sale pressure.
A final indicator to believe the S&P may be moving down is the divergence between the trend of the Index and the MACD histogram. While the S&P has being moving up for the entire year, the MACD indicator is being moving in the opposite direction, an indication again of selling momentum being built up.
Given the technical picture and the environmental complexity - with Greece not being able to form a government coalition, and with markets expecting that the opposite party, the left-wing coalition that opposes austerity as a way to close Greece's debt gap, may form a government coalition within the next 3 days and may force the country to drop out of the Eurozone - the possibility of the S&P breaking down and continue in the down direction for a while may be more likely than the opposite.
In case the Index breaks down, a next important support level is 1290 or a 5,15% drop from the current level. In case the Index rebounds and goes up, it may go to the 1420 high levels of the year and then in line to target the all times high of 1570. A 15.8% gain from its current level.
(c) 2013 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.