S&P 500 Technical Analysis | S&P 500 Trading: 2017-11-20 | IFCM
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S&P 500 Technical Analysis - S&P 500 Trading: 2017-11-20

The quarterly earnings season is coming to an end in the US

After Donald Trump’s victory in the US presidential elections in November 2016, the S&P 500 rose by 20%. At the same time, the profit of the companies from the S&P500 list grew by only 8% in Q3 of 2017 compared to Q3 of 2016. Is there a possibility for the S&P 500 quotes to decrease?

An important reason for the growth of the US stocks was investors' expectations that Donald Trump’s new tax reform would significantly reduce the tax burden of the US corporations and improve their financial performance. Currently, the prospect of the reform is vague, since the US Senate and the House of Representatives offer its various versions. The discussions on the reform may last until Q1 of the next year, and the reform itself may be rescheduled for the next year. The S&P 500 quotes have been growing at a faster pace than the companies’ profits in recent months. The current P/E ratio (index capitalization/total profit of all its companies in a year) reached 22.6 and markedly exceeded the average multi-year value of 14. A high P/E ratio is often a sign of a "overheated" market. Note that the corporate earnings season for the Q3 is almost over in the US. The remaining companies are unlikely to significantly improve the overall financial performance of the S&P500.

SP500

On the daily timeframe, SP500: D1 remains in the rising trend, but, currently, its growth has slowed down and a number of technical analysis indicators have formed bearish signals. A complete downward correction is possible in case of the publication of negative economic and corporate information in the US.

  • The Parabolic indicator gives a bearish signal.
  • The Bollinger bands have narrowed, which means lower volatility. They are tilted down.
  • The RSI indicator is above 50. It has formed a negative divergence.
  • The MACD indicator gives a bearish signal.

The bearish momentum may develop in case SP500 drops below the 5 last fractal lows and the lower Bollinger band at 2540. This level may serve as an entry point. The initial stop loss may be placed above the last fractal high, the historic high, the upper Bollinger band and the Parabolic signal at 2616. After opening the pending order, we shall move the stop to the next fractal high following the Bollinger and Parabolic signals. Thus, we are changing the potential profit/loss to the breakeven point. More risk-averse traders may switch to the 4-hour chart after the trade and place there a stop loss moving it in the direction of the trade. If the price meets the stop level at 2616 without reaching the order at 2540, we recommend cancelling the position: the market sustains internal changes that were not taken into account.

Summary of technical analysis

PositionSell
Sell stopbelow 2540
Stop lossabove 2616

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Note:
This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.

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