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SP500 – what comes next?

A continued recovery in U.S. equity markets overnight prompted by headlines that a research team at a Chinese university had found an effective drug to treat patients of coronavirus and another round of better than expected U.S. economic data.

In terms of the U.S. economic data, the ADP employment print was notable for being the strongest number since May 2015 and was followed by better than expected ISM non-manufacturing PMI data coming hot on the heels of stronger than expected ISM manufacturing number released earlier in the week.

In our articles on key stock indices over the course of the past two weeks, our base case has been for a pullback of between 3-5% in key equity markets including the S&P 500 and the ASX200, the emergence of the virus being the catalyst for the corrections.

The strong rebound in both the S&P500 and the ASX 200 comes following falls of -3.7% and -3.5% respectively, right in the ballpark of what we looking for, a pleasing development as an analyst and a trader, a tragedy that it comes as a result of the loss of human life.

Taking into careful consideration that uncertainties remain around the duration and severity of the coronavirus, we will attempt to answer what comes next for the benchmark S&P 500 equity index, the barometer of risk sentiment that I most rely on.

As viewed on the chart below, the decline from the 3337.50 high to this week’s 3212.75 low, while falling just short of our ideal pullback target between 3200 and 3180 unfolded in three waves, typically a sign of a correction, before returning to the surety of a well establish uptrend channel.

Today in the Asian session, S&P 500 futures have made new all-time highs, in theory, the minimum requirement for a Wave v. However, if we use a common projection for a Wave v which is the length of Wave i, there is scope for the next leg higher to extend towards 3450/3500.

In a nutshell, the recent correction appears complete and the 3450/3500 area becomes the next upside target, using this week's 3212.75 swing low as the bullish reassessment level.

SP500 – what comes next?

Source Tradingview. The figures stated areas of the 6th of February 2020. Past performance is not a reliable indicator of future performance.  This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

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