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Is the S&P 500 set to test the January lows?

While every traders should have the USD and oil on the radar, I feel this pattern on the US 500 is really interesting. There is clear symmetry with the set-up in July to November last year.

CFDs are a leveraged product and can result in losses that exceed deposits. Trading CFDs may not be suitable for everyone, so please ensure you fully understand the risks and take care to manage your exposure.
Oil
Source: Bloomberg

Here we can see a 14% decline in the index on both occasions, followed by a counter-rally into a key Fibonacci retracement area. The index then made a strong move higher in a bearish wedge pattern, showing eventual signs of exahustion as the daily ranges contracted. What’s interesting this time is we have seen price make a higher high in late April, but this was not mirrored in the RSIs, which made a lower high. This divergence can be one of the most telling signs of an impending reversal and clearly this has played out, with a corresponding move through trend support. The question now is whether we see a 14% lower like we saw in November 2015. My personal view is that the risks of a stronger move lower have picked up and I would be using rallies in the market to look at short positions. It seems highly likely from this set-up that the April high of 2111 is the high point.

It’s unclear what would drive a move into 1800 at this stage, but I suspect it comes from a sharp move higher in the USD (see the key technical set-up here) and its destabilising impact on China and other emerging markets.

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CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.