SP500: seems that the correction did not end on Friday

May 14, 2019

By Tomasz Wiśniewski, Chief analyst at Alpari Research & Analysis

Sell in May and go away. Is it that easy? Well, it wasn’t last year but it seems that it is now, at least in the first half of the month. The S&P 500 index is close to monthly lows and has already beaten the lowest price in April. What is more, we are not that far from the lowest price of March.

What are the reasons of that? From a fundamental point of view, you can always find an explanation, always! At the moment, we can put this all down to trade talks and new tariffs. Tensions between US and Iran are also playing a role here. Some experts are also pointing to future conflicts like the one between US and EU as soon we will find out if Trump’s administration will impose tariffs on car imports from the EU, which could significantly hurt the block’s economy. It is hard to predict the outcome here and all we can do right now is either guess or simply wait.

SPX500 D1If you cannot predict the fundamentals, you can switch to technical analysis and trade what the dots and lines are telling you. In this regard, the situation looked quite alright on Friday, but does not look good anymore after the weekend. On Friday, the price created a second daily hammer in a row, which did not happen in a random place but on the long-term upwards trend line (red) and on the lower line of the wedge (black). After this, we would normally witness an upswing, but apparently, these are not normal times.

We started the week on the back foot, with the price ignoring those hammers and opening below the upwards trend line. That is a very negative sign. If you still believe there will be an upswing, this is not the best place to buy. Technical analysis is pretty clear here and says that one can buy after a bullish breakout from the wedge (black) so after the daily candlestick closes above the upper black line. So long as this doesn’t happen, sellers have the higher chance of success.

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Source: Alpari