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The S&P 500 is now above the upper end of its “typical” extreme, daily, weekly and monthly RSI momentum are all highlighting an overbought condition, the VIX is threatening a base and 10yr US Breakevens are retreating from their medium-term resistance. All-in-all, this suggests the event risk and threat of a correction and volatility heading into tomorrow’s US payroll report is now seen as extremely high, per Credit Suisse.

Key quotes

“The S&P 500 has gapped higher for a move with ease above our objective at 3525/29 for a test of its next projection resistance at 3588. This also leaves the market above the upper end of its ‘typical’ extreme (15% above the 200-day average) and with RSI momentum overbought on a daily, weekly and monthly basis the index is now seen in a dangerously overextended state. Adding further weight to this view remains US Breakevens, which have maintained a close relationship with US Equities all year and which are now turning lower from medium-term resistance, with the VIX also having risen as the market moves to new record highs and threatening a base above 28.58.”

“All-in-all, we are approaching an inflection point, with the US payrolls report tomorrow seen as a clear risk event. Above 3588 would suggest the immediate risk can still stay higher today with resistance next at 3600, then the top of the trend channel from late June, today at 3625, which we would look to then cap.”

“Below 3560 can see a move back the gap from yesterday at 3538/27, with a break and close below here needed to suggest we may be finally seeing at least a near-term peak, with support then seen next at 3495/93.”

 

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