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The S&P500 has once again bounced from its 200-day moving average, as traders shrug-off a raft of hawkish FED speakers and more worrying news from the ongoing Ukrainian war.
A massive head inverted, and shoulders pattern is currently capturing traders’ attention on the S&P500 as it is warning of more strong gains ahead towards the psychological 5,000 level and beyond
In terms of the likelihood of this pattern playing out, it really depends on the situation in Ukraine and the Fed, and just how much momentum the current recovery from the 4,100 level has.
As things stand, the upside potential is certainly there due to the positive technical backdrop, however, we also must consider that any negative news could cause a major reversal.
Lower time frame analysis shows that a potential final right-hand shoulder may be needed to form, so a technical correction could be on the cards. The price action is also more bullish than one would expect if market participants do not believe a major nuclear conflict was going to start.
Something else to consider is market sentiment. That ActivTrader sentiment platform shows that 62 percent of traders are bullish towards this market. I believe this is a negative because negative sentiment is not high as you would expect.
Usually, we should look to fade sentiment extremes, which are currently not there. We probably need to see bearish sentiment to take hold before looking to buy the S&P 500 in order for the next major rally to happen.
S&P 500 Short-Term Technical Analysis
The four-hour time frame shows that the S&P500 could be forming a huge, inverted head and shoulders pattern, so we do need to bear in the mind the upside risks if this blows.
Downside risks are increased if we see a final right-hand shoulders to form, I would then expect a big drop towards the 4,400 to 4,300 support zone to happen as it completes.
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S&P 500 Medium-Term Technical Analysis
Looking at the daily time chart, the central focus remains a massive head and shoulders pattern, which is looming large over the S&P500 and the recent bounce from the 200-day MA.
A move above the 4,600 level is required to activate the massive, inverted head and shoulders price patter which holds a 500-point upside target for the S&P500 index.
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