S&P looks unable to recover – Where to next ?

Deadlocked US-Sino trade talks dominated the market narrative amid growing anxiety that there won’t be a breakthrough after all, and as China vowed retaliate after the US hikes tariffs on a large chunk of imports from China on Friday.

Washington demanded promises of concrete legal changes from China after Trump said Beijing “broke the deal” by going back on earlier commitments. However, comments from both sides that the talks were “constructive” and would continue in the future helped stocks rebound. China’s Hu Xijin tweeted that negotiations did not “break down.” The two sides agreed to meet again in Beijing in the future.

Wall Street managed to close higher on Friday, after recovering earlier losses, but there was nothing to fuel hopes that an escalation of trade tensions can be avoided for now and Chinese stock markets, in particular, were under pressure overnight.

The USA30 reversed its over 350 point decline to finish 114 points firmer, while USA500 futures are down over 1% in overnight trade. The latter reached 2,824 area, which is the FE200.0 level from May 2 swing, and also the upper boundary of the 5-month Resistance area (2,817-2,824 area) which might now swap to a Support area. However this has not been confirmed yet.

Hence as the asset remains under pressure today, trading below 50-day SMA, with daily lower Bollinger Bands extending southwards and daily momentum indicators negatively configured, the 5-month’s area at 2,817-2,824, should be closely watched. A reach and break of this area could open the doors further to the downside, to 2,784 (FE 261.8), and 2,755 (100-day SMA).

The RSI has dropped to 41, as it failed to break the neutral zone on Friday, while MACD has been eliminated at the neutral zone , well below signal line, presenting that bulls are facing a real leadership challenge in the medium term.

On the flipside, immediate Resistance is set at the confluence of today’s peak and FE 127.2, at 2,868.55. However, only a break of the 2,892.00 level (50% Fib. level on May’s drift), could turn the overall outlook into a positive one again.

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Andria Pichidi

Market Analyst

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