Source: IRESS
The S&P 500 index in the United States has been trading in a strong uptrend since March 2020, posting a fresh record high of 4,257 on June 15.
On Wednesday, June 16, the index lost ground and headed solidly lower after the Federal Reserve signalled that policy makers expect rates to rise earlier than previously expected by pencilling in two increases by the end of 2023.
The uptrend has slowed over the past four months; however, the price structure remains constructive at this point and as long as support of 4,056 holds, the secondary uptrend remains intact.
The 423.60% Fibonacci retracement ratio measured from the December 2007 high to the March 2009 low shows the first major resistance for the primary uptrend arises around 4,500, therefore, we see a good probability of the index reclaiming this level.
While the daily Relative Strength Index (RSI) indicator remains in its bull-market range at this time, the weekly and daily readings are overbought and we have a clear formation of a bearish divergence over the past two months on the daily chart, which suggests the pace of the uptrend is likely to moderate in coming months.
Overall, the index is overbought on a weekly and monthly basis, which is the first red light flashing on the chart, showing the market is expensive and warning investors that some caution is required.
Despite the overbought momentum conditions, we don’t see a reversal of the uptrend yet and as long as support of 4,056 is intact, we are of the view that the index may overshoot to 4,500 in the next 6 to 12 months, before a deeper decline takes place.
2. S&P/ASX 200