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S&P 500 forecast this week February 10 to 16: The index remains vulnerable to a correction

By Rakesh Upadhyay

Though the S&P 500 is near its lifetime highs, it is time to be cautious

Though the S&P 500 fell 0.54 per cent on February 7, the index ended the week with strong gains of 3.17 per cent. This shows that the markets have disregarded the threat from the coronavirus outbreak and have continued to buy the dips.

However, the virus continues to spread. With this outbreak, a large part of China is quarantined, which is likely to severely affect China’s first-quarter GDP. A severe slowdown in China is likely to affect global growth. Ed Yardeni, president of Yardeni Research, believes that the virus threat is the biggest risk to the current bull market and he expects a 10 per cent correction from the recent highs.

Though the S&P 500 is near its lifetime highs, it is time to be cautious. Let’s analyse the weekly and daily charts to do the S&P 500 prediction for this week.

S&P 500 technical analysis: weekly chart

The S&P 500 turned around this week and easily climbed back into the ascending channel. This shows that the market participants aggressively bought the recent dip. The momentum was so strong that the index went on to hit a new lifetime high during the week.

After the recent fall, the RSI has also corrected its overbought level, which is a positive sign. If the bulls can sustain the price above 3350, the index is likely to extend its up move and reach the resistance line of the larger channel near 3500.

However, if the bulls fail to sustain the price above 3350, a drop to the recent low at 3216.2 is possible. A break below this level will turn the trend in favour of the bears.

The analysis of the S&P 500 weekly chart shows that the sentiment has turned positive once again. However, can the bulls continue the momentum and extend the rally further or will the markets reverse direction? Let’s analyse the S&P 500 daily chart to find out.

S&P 500 analysis: daily chart

The S&P 500 analysis of the daily chart shows that the bulls aggressively defended the 50-day SMA on February 2 and 3. As the sellers failed to follow up on the breakdown of the 50-day SMA on January 31, the aggressive bears who had taken short positions were forced to cover.

Short covering and aggressive buying by the bulls boosted the index back to new lifetime highs. It is expected that the bears to mount a strong defence at the 3350 levels. On Friday, the index gave up some of the gains accrued during the early part of the week.

If the bears can drag the price below the channel once again, the index might remain range-bound between 3359.8 and 3216.2. A break below 3216.2 will tilt the advantage in favour of the bears.

Both moving averages continue to slope up, which shows that the bulls have the upper hand. However, the RSI is forming a bearish divergence, which warrants caution.

S&P 500 prediction this week – February 10 to 16

Contrary to our assumption, the index skyrocketed higher this week. This shows demand at lower levels. Though the index is close to the lifetime highs, there is still no confidence that the index will continue its upwards move. Therefore, we suggest traders should avoid initiating long positions for the long-term. A prudent strategy would be to stay on the sidelines until the uncertainty of the coronavirus outbreak clears out.

FURTHER READING: Financial markets in Europe and the US kept afloat amidst coronavirus drug hopes

FURTHER READING: What is the coronavirus and how could it affect stock markets?

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