We are witnessing the most significant pullback since the rally started in mid-March. It is probably part of a correction within the bullish trend, which started in March.
The main question is how much downside is likely short-term? It depends on sentiment. Put differently, it depends on how fast risk appetite and fear of missing out catch investors who moved to the sidelines recently. The black path shows that this could happen very fast. Buyers could step in and end the correction by the end of next week. If the black scenario plays out, the 4400 and 4500 S/R levels will most likely be the battlefield. A sustained break below 4500 leads to the 4400 S/R, which coincides roughly with the darker grey short-term bull trend. A broad-based reversal around these levels signals that a 1-2-1-2-3 setup is most likely. It leads swiftly to higher levels within the darker grey trend.
The red scenario is less likely but the best alternative. It shows how an expanding leading diagonal could form. The red scenario fetches higher odds if the S&P 500 swiftly breaks below the 4500 S/R and carries on below the 4400 S/R. This selloff could lead to capitulation as most investor sentiment gauges remain somewhat bearish despite the recent rally.
The most recent Investor Intelligence survey recorded slightly more bulls than bears for the first time in a month. The AAII sentiment poll showed as well slightly more bulls than bears. It was the first reading where bulls dominated bears this year. Likewise, institutional gauges did not hint at a convincing sentiment shift yet. Barclay's data reveals that professional investors are positioned cautiously. All in all, sentiment gauges signal more room to the upside.
The bottom line is that the rally will likely continue sooner or later. Behavior around key supports will probably reveal more information during the next few trading days.
The main question is how much downside is likely short-term? It depends on sentiment. Put differently, it depends on how fast risk appetite and fear of missing out catch investors who moved to the sidelines recently. The black path shows that this could happen very fast. Buyers could step in and end the correction by the end of next week. If the black scenario plays out, the 4400 and 4500 S/R levels will most likely be the battlefield. A sustained break below 4500 leads to the 4400 S/R, which coincides roughly with the darker grey short-term bull trend. A broad-based reversal around these levels signals that a 1-2-1-2-3 setup is most likely. It leads swiftly to higher levels within the darker grey trend.
The red scenario is less likely but the best alternative. It shows how an expanding leading diagonal could form. The red scenario fetches higher odds if the S&P 500 swiftly breaks below the 4500 S/R and carries on below the 4400 S/R. This selloff could lead to capitulation as most investor sentiment gauges remain somewhat bearish despite the recent rally.
The most recent Investor Intelligence survey recorded slightly more bulls than bears for the first time in a month. The AAII sentiment poll showed as well slightly more bulls than bears. It was the first reading where bulls dominated bears this year. Likewise, institutional gauges did not hint at a convincing sentiment shift yet. Barclay's data reveals that professional investors are positioned cautiously. All in all, sentiment gauges signal more room to the upside.
The bottom line is that the rally will likely continue sooner or later. Behavior around key supports will probably reveal more information during the next few trading days.