Technical Analysis: U.S Market – Potential market tops as the rally continues June 1, 2020 1160

  • The stock market is seeing recovery on optimism from the opening of the US economy. However, investors remain concerned that a 2nd wave of infection might push the market back down.
  • Trump’s remarks with regards to China without mentioning any new tariffs or sanctions provided some relief to the market.
  • However, as the severity of looting and riots in major U.S states worsens, curfew and lockdown have returned. As such, the market on Monday may adopt a wait-and-see approach.
  • As key levels mentioned on our report dated 11th May are broken, we are looking at stocks testing higher levels.
  • However, the neutrality remains as the next level of resistance remain untested.

 

The index broke the immediate resistance zone of 24,600 – 25,231 points last week. If the immediate resistance at 161.8% extension of the sub-wave of A-B is broken subsequently, the next key resistance level at 78.6% retracement level of 27,138.62 derived from recent swings between 18,213.65 – 29,568.57 will be tested. The subsequent wave C pattern will depend on whether the resistance level at 27,138.62 is broken.  

 

Looking at the price action, price has been trending above the 50-day moving average line after breaking out of the leading diagonal/rising wedge, which often signifies a deep correction but in this case, the price is well supported at the 50-day moving average after its breakout and price continues to rise steadily as it is slowly approaching the flat 200-day moving average.

 

Potential rebound level is between 20,761 – 21,509 and 18,213.65 – 19,073.80.

 

Similar to the Dow Jones Industrial Average, prices broke the 61.8% after a breakaway gap on 18th May 2020. The 161.8% extension level of (a) – (b) remains as a key resistance zone (3,071.18 – 3,136). With prices trending above the 200-day moving average, the S&P 500 will likely get the momentum to break the resistance zone and test the next resistance level at 3,200.

 

As mentioned on our report on 11th May, NASDAQ is the only index whose growth surpassed the DJIA and SPX 500 and it is the only index with a 3-3-5 sub-wave. The Nasdaq Composite Index played out as per our analysis testing the key resistance zone between 9,199 – 9,390 on Friday 29 May 2019. We should see prices testing the 10,000 psychological level if the rally continues to reach its highest level in history.

 

On May 13th, Goldman Sachs experienced a sell-down right after the ‘Evening Star’ formation on the right shoulder but prices rallied and broke the 200.00 psychological resistance level. The persistence rally of prices formed an ascending channel and the uptrend will most likely test new grounds in the mid-term. However, we expect some pull-back in prices as the bearish tweezer rejected the 200-day moving average and the 161.8% extension level of US$165.36 – US$193.72.

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