S&P Technical Analysis: Anticipating a Shift to Risk-Off Sentiment in the Markets

(Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)

In a surprising turn of events, the markets have soared to new all-time highs on the back of expectations for a potential interest rate cut. However, a closer examination of the current economic landscape reveals a precarious situation where any decision may lead to undesirable consequences. The prospect of cutting interest rates amid global uncertainties, such as the ongoing geopolitical tensions in the red sea, raises concerns about exacerbating inflation at an inopportune moment. Conversely, adhering to a tightening policy could spell trouble for banks, potentially triggering events akin to the SVB crisis.

Let's delve into the charts for a more comprehensive analysis. The chart indicates the completion of a 5-wave (motive wave) upward movement following the correction between January and October of 2022. Moreover, the price has tapped the upper trendline of the upward-sloping channel, signalling a looming significant pullback. While the arrow points to the lower trendline as a preliminary target, the analysis suggests the potential for more substantial pullbacks. In the worst case scenario a pullback in the range of 40-50% could unfold, presenting a challenging scenario for market participants.

Adding to the price analysis, the Relative Strength Index (RSI) in higher timeframes reveals a divergence, reinforcing the likelihood of an impending correction. It's crucial to acknowledge that such pullbacks are likely to be intertwined with economic and geopolitical events acting as catalysts, emphasizing the need for a cautious approach in the current market environment.

This anticipated risk-off sentiment is poised to have a cascading impact across various markets, extending to gold and cryptocurrency markets. The extent of corrections, measured in percentage terms, will vary across markets, with more volatile and overbought assets experiencing more pronounced adjustments. For instance, the NASDAQ is likely to undergo a more significant correction compared to the Dow Jones Industrial Average. As these developments unfold, staying vigilant and adapting strategies in response to emerging trends will be essential for navigating the evolving financial landscape.

As always stick to a robust risk management plan!