Where do we go from here?
The S&p 500 moved up to the 50% retracement level after the big sell off in March. This is the 2778 level, will we go back down and fill out the double bottom formation that everyone is waiting on or continue to push up, that is the million dollar question. Lets break it down into three possible scenarios.
Scenario #1: Bulls remain in control.
Taking a look at the daily chart of the E-Mini S&P 500 futures contract we can see that price is clearly moving up. In the past 19 days, price has only dipped below the previous day's low 3 times. This signals to us that bears are in control, the 2500 level has clearly turned into a support level, due to the fact it took us 8 days to break and hold above this level.
For bulls to remain in control we need to turn 2630 into support. Basic price action rules tell us that in a bullish trend price looks to turn resistance into support. Last week 2630 was resistance, we are currently above that level now we need to hold and turn into support. At the moment price could be considered overbought and sellers will try to bring price back down to a “fair” value, this would most likely be seen as the 2630-2600 level.
Once back at this level it is up to bulls to defend and hold above/around if this move is to continue, this would also be considered a HL and still in line with the overall trend.
Review: bears sell back down to 2630-2600 level bulls must defend and hold the support level to keep the move alive.
Scenario #2: Bears take the wheel.
After seeing a historic sell off it is no surprise that price has rallied back up to the 50% retracement level or the 2778 level. This level could easily be seen as a selling point and make a nice LH on the overall move down. A few levels that bears need to break and hold under, first is the 2778 level as stated before this is the 50% retracement level, second is the 2630 level once broken bears could easily regain the overall trend and push price back down to 2400-2300 level.
For this to happen we need to see a strong rejection of higher prices mainly at the 2630-2600 level this would break the trend from the past 2 weeks and be a strong signal that bears are back in control.
This move could easily be fueled by the mass amounts of unemployment, if the FED does not continue to prop up the economy. We could easily see a scenario similar to the 08 crash as individuals would begin to default on loans.
Review: bears hold under the 2778 level aka 50% retracement level, once this is done look for price to break the 2630-2600 level and reject higher prices.
Scenario #3: Range sets in.
We have moved up off the lows but are not out of the storm yet, there are no major events to push us up out of this and there have been no new major developments to push price back down. Bulls and bears can see that price could go either way and we are stuck in a range until we receive good news. This could come in the form of a decline in unemployment, a vaccine or the number of cases/deaths sharply declines.
The levels to keep an eye on are of course the 2778 level this could be seen as the range high as bulls fight to push above and 2600 could be seen as the range low as bears fight to push price down and regain control.
Keep an eye out for any major events, this week is supposed to be a flattening of the curve if this does not happen markets could easily get back mid march price action as the sell off continues.
What do you think? Let us know below!