The US 500 cash index has been experiencing a continuous downward trend, with its sixth consecutive red candle marking a negative start to 2024. This correction in the index may see further decline if the upcoming data releases on Friday disappoint market participants. It is worth noting that despite the correction, the US 500 index remains significantly higher, approximately 14%, than its low of 4,100 recorded on October 27, 2023.
The recent bullish trend is still assumed to be intact; however, the momentum indicators have shifted firmly in favor of the bears. The Average Directional Movement Index (ADX) is approaching its 25-midpoint, indicating the potential end of the recent bullish trend. Additionally, the Relative Strength Index (RSI) is on the verge of breaking below its 50-midpoint for the first time in two months. Perhaps most notably, the stochastic oscillator has broken below both its moving average and the overbought territory, commonly regarded as a strong bearish signal. These momentum indicators suggest that the bears are seeking to regain control and push the US 500 index below the high of March 29, 2022, at 4,637.
If the bears succeed in their endeavor, they will likely target the support area between 4,533 and 4,550. This range includes the September 3, 2021 high, the 78.6% Fibonacci retracement level of the January 4, 2022 – October 12, 2022 downtrend, and the 50-day simple moving average (SMA). However, breaking below the 100-day SMA at 4,461 may prove more challenging than initially anticipated.
Conversely, the bulls will aim to keep the US 500 index above the 4,637 level as a first step. If they succeed, they may attempt to rally towards the 2023 high and eventually test the resistance set by the January 4, 2022 high at 4,818. Beyond that, the plausible next target for the bulls is the 4,900 level.
After an impressive rally in the US 500 index from its October lows, a bearish correction has emerged. This correction could potentially gain further traction due to the shift in momentum indicators favoring the bears. Traders and investors should closely monitor the upcoming data releases on Friday, as they may influence the direction of the market.
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