The intermediate-to-long term trend on the S&P 500 Index remains bullish. We still recommend investors respect the dominant and prevailing trend. However, March is turning into a volatile period that will likely determine the near-term trends of SPX. Traders will need to be extra careful as the market will undergo pivotal technical tests. The outcome of these tests in the next few days/weeks will likely determine the near-term trend of SPX and influence the direction of many of the larger-cap U.S. stocks.
Attached below are two technical charts. The first is an intra-day chart of SPX over the past 1-plus month. The second chart is a daily chart of SPX spanning the past six months.
SPX intraday chart
The 1-plus intra-day chart shows the sharp 1/29/21-2/16/21 rally or +256.31 points (+6.94%) led to an overbought condition. Although higher prices are still possible to 4,207, the recent -5.75% pullback appears to be high-level consolidation between 3,789.54-3,810.81. However, the technical breakdown below 3,789.54 (1/26/21 low) warns of the next decline to 3,694.12 (1/29/21 low), and below this to 3,629 (downside target). Violation here creates a lower-low pattern and warns of a deeper correction of -256.31 to 3,438.
On the upside, the initial trading resistance is 3,789.5-3,811 (3/4/21 breakdown). A breakout here can lead to the next SPX technical rally to 3,914.5-3,930 (2/19, 2/24, and 3/1/21 highs) and above this 3,950.43 (2/16/21 all-time high). A breakout above 3,950.43 confirms a record high and renders the next sustainable SPX rally toward 4,207.
SPX 6-month daily chart
A potential head and shoulders top pattern warns of near-term SPX volatility. The head is 3,950,43 (2/16/21 all-time high). The left shoulder is 3,870 (1/26/21 high), the right shoulder is 3,928.65 (2/24/21). Violation neckline support below 3,694 (1/29/21 low) suggests -256.31 or downside to 3,438. On the other hand, the ability to find initial support at 3,677-3,694 signals a technical rebound toward 3,819-3,843.67 (50-day ma and 3/4/21 intra-day high). A breakout here renders the next technical rally to the left and right shoulders (3,870.90-3,928.65), and above this to 3,950.43 (the head and 2/16/21 all-time high). A breakout above 3,950.43 confirms a record high and suggests +256 or an SPX target to 4,206.
Key technical levels for SPX based on the 6-month chart are:
Support 1 = 3,677-3,694 (1/29/21 low and neckline support, and 38.2% retracement)
Support 2 = 3,588-3,592 (50% retracement and Sep 2020 high)
Support 3 = 3,467-3,508 (61.8% retracement, 200-day ma, and h/s top breakdown)
Support 4 = 3,279-3,318 (38.2% retracement from Mar 2020-Feb 2021 rally and Sep 2020 uptrend)
Resistance 1 = 3,819-3,843.67 (50-day ma and 3/4/21 high)
Resistance 2 = 3,871 (1/26/21 high and left shoulder)
Resistance 3 = 3,929-3,950.43 (2/16 and 2/24/21 all-time highs)
Resistance 4 = 4,206 (head/shoulders top breakout target)