More upside is likely after a brief pullback.
The rally of the past few trading weeks stalled recently. Nonetheless, it is broad-based across risky assets. That hints at genuine buying demand after investors have been shaken out of equities early this year. Tech stocks had a higher beta and outperformed during the rally.
The black and red paths show the most likely scenarios at the time of this write-up. An imminent pullback is likely as long as equities do not continue on the upside with increasing momentum. A complementary and sustained breakout above 4600 in the S&P 500 and 2100 in the Russell 2000 signals that a third wave to the upside is unfolding. A broad-based reversal around these levels signals that a 1-2-1-2-3 setup is most likely. That's a kiss and goodbye scenario for swing traders. Increasing momentum and broad-based confirmation support an immediate rally scenario.
Otherwise, the base case is that the S&P 500 continues consolidating within a second wave of minute degree towards the 4400 S/R and potentially deeper towards the 4300 S/R. The red scenario is less likely but the best alternative. It shows how an expanding leading diagonal could form. The red scenario fetches higher odds if the S&P 500 swiftly breaks below on increasing momentum. This selloff could lead to capitulation as most investor sentiment gauges remain somewhat bearish despite the recent rally.
All in all, the S&P 500 is most likely not done to the upside. The base case remains a pullback before the rally carries on.
The rally of the past few trading weeks stalled recently. Nonetheless, it is broad-based across risky assets. That hints at genuine buying demand after investors have been shaken out of equities early this year. Tech stocks had a higher beta and outperformed during the rally.
The black and red paths show the most likely scenarios at the time of this write-up. An imminent pullback is likely as long as equities do not continue on the upside with increasing momentum. A complementary and sustained breakout above 4600 in the S&P 500 and 2100 in the Russell 2000 signals that a third wave to the upside is unfolding. A broad-based reversal around these levels signals that a 1-2-1-2-3 setup is most likely. That's a kiss and goodbye scenario for swing traders. Increasing momentum and broad-based confirmation support an immediate rally scenario.
Otherwise, the base case is that the S&P 500 continues consolidating within a second wave of minute degree towards the 4400 S/R and potentially deeper towards the 4300 S/R. The red scenario is less likely but the best alternative. It shows how an expanding leading diagonal could form. The red scenario fetches higher odds if the S&P 500 swiftly breaks below on increasing momentum. This selloff could lead to capitulation as most investor sentiment gauges remain somewhat bearish despite the recent rally.
All in all, the S&P 500 is most likely not done to the upside. The base case remains a pullback before the rally carries on.