E-mini S&P 500 Index (ES) Futures Technical Analysis – Upside is Crowded, More Room to Downside

The benchmark S&P 500 Index retreated for a second day on Wednesday as investors continued to digest Wednesday’s comments from Federal Reserve Chairman Jerome Powell. He said that recently low inflation pressure may just be “transitory,” hinting that a rate cut may not be on the horizon.

Remember that historically low rates started the rally over 10-years ago and kept it going until late September/early October when the Fed hinted at raising rates more aggressively. After a steep, nearly three-month sell-off, the market has recovered all of the loss while hitting a record high. Most of the surge since the beginning of the year has occurred after the Fed turned dovish in January.

Some of the rally has been fueled by the notion that the Fed will be forced to cut rates before the end of the year. This thought was dampened on Wednesday, encouraging stock market bulls to pare long positions to reflect the change in Powell’s tone.

On Thursday, the June E-mini S&P 500 Index settled at 2917.50, 5.50 or -0.19%.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum has been trending lower since the formation of the closing price reversal top on Wednesday and the subsequent confirmation early Thursday.  This chart pattern often triggers a 2 to 3 day correction.

A trade through 2961.25 will negate the reversal top and signal a resumption of the uptrend. A trade through 2889.50 will change the main trend to down.

The minor trend is down. This move reaffirms the shift in momentum.

The main range is 2789.50 to 2961.25. If the main trend changes to down then its retracement zone at 2875.25 to 2855.00 will become the primary downside target.

The intermediate range is 2889.50 to 2961.25. Its retracement zone at 2925.50 to 2917.00 is currently being tested. This zone could act like a pivot.

The short-term range is 2961.25 to 2901.00. Its retracement zone at 2931.25 to 2938.25 is the next upside target. This zone is important because sellers are going to come in on a test of this zone in an effort to form a secondary lower top. If they are successful, then look for more selling pressure.

Daily Swing Chart Technical Forecast

Based on Thursday’s close and the early price action, the direction of the June E-mini S&P 500 Index on Friday is likely to be determined by trader reaction to the Fibonacci level at 2917.00.

Bullish Scenario

A sustained move over 2917.00 will indicate the presence of buyers. This could trigger a labored rally with retracement levels lined up at 2925.50, 2931.25 and 2938.25. The latter is the trigger point for an acceleration into 2961.25.

Bearish Scenario

A sustained move under 2917.00 will signal the presence of sellers. They could drive the market back into yesterday’s low at 2901.00. If this fails, then look for another steep break into the main bottom at 2889.50. Taking out this bottom will change the main trend to down and likely lead to an eventual test of the 2875.25 to 2855.00 retracement zone.

As you can see from the daily swing chart, the way of least resistance is down.