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S&P 500 technical analysis March 23 to 27: Can the index bounce back after the worst week since 2008?

By Rakesh Upadhyay

The index is oversold but as the bearish momentum is strong, traders are advised to sit on the sidelines.

The S&P 500 plunged 14.98 per cent last week, which was one of the biggest weekly falls since the financial crisis of 2008. This shows that the investors are in a state of panic as the coronavirus pandemic spreads uncontrolled in Europe and is now threatening to engulf the US. The lockdowns of various cities and nations to control the spread of the virus is likely to be a huge drag on the economy.

Several governments have announced relief packages to support the economy but analysts believe that it will still not be enough to avoid a global recession. If the virus is not brought under control soon, it could lead to a number of bankruptcies in sectors such as airlines, cruise operators and energy.

Investors are in a state of panic over uncertainty about the damage the virus might cause to people and the economy. Therefore the index is likely to remain volatile. While the fundamentals look uncertain, let’s analyse the charts to do the S&P 500 forecast for next week.

SandP 500 index technical analysis: weekly chart

The S&P 500 remains in a strong corrective phase with the bears firmly in command. Even though the RSI is deeply oversold, the bulls are not able to sustain the intra-week recoveries, which suggests that the bears pounce on any relief rally to offload their positions.

If the index sustains below 2,300, the next stop is likely to be a drop to 2,000. As this is a round number, the bulls are expected to defend this level aggressively. However, if the 2,000 level also fails to hold, the decline could extend to 1,800. During a panic it is difficult to predict where the turnaround will happen but we can watch the critical levels closely for a possible reversal.

Contrary to our assumption, if the bulls purchase the dip and push the index back above 2,340, it will be the first sign of accumulation at lower levels. Any recovery is likely to hit a wall closer to 2,700 levels. While the long-term chart looks oversold, let’s study the daily chart to try and give the S&P 500 forecast for next week.

SandP 500 index technical analysis: daily chart

The daily chart also shows that the bears are firmly in command. Since the correction started, the bulls have even failed to retest the 20-day EMA, which shows that the bears are not even waiting for a minor rally to sell.

The index has not seen a back-to-back rally since topping out on February 20. This shows that the bulls are not confident that a bottom is in place, so they are not buying at higher levels. The 50-day SMA and the 200-day SMA are on the verge of a bearish crossover, also termed a “death cross”.

While most of the setup on the chart is negative, there is a ray of hope in the RSI, which is attempting to form a bullish divergence. However, unless the price action shows signs of recovery, traders should avoid jumping in to buy.

SandP 500 predictions for March 23 to 27

The S&P 500 forecast for next week suggests further weakness. There might be an attempt to arrest the fall close to 2,200 but the recovery attempt is likely to fail unless we get the positive news that the spread of the coronavirus has been contained.

However, as the index is already oversold, short positions at the current levels are not advised. As we do not have the confirmation of a bottom, traders are suggested not to buy in a down-trending market either.

FURTHER READING: Stock market crash 2020: what is going to happen next?

FURTHER READING: Nasdaq analysis for March: the forecast for the month remains volatile

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