S&P Reversal Underway

The sell-off in US equities will not come as too much of a surprise for followers of the blog. Rising US inflation expectations amidst vaccination and reopening optimism, rising energy prices and higher commodity prices, along with the bearish divergence seen in momentum studies on the last push higher. The signs have been there for a little while. The S&P has now broken down out of the rising wedge formation which foretold the reversal and has now broken down below the 4116 level. Should price retest this level from below, look for failure candles to initiate shorts targeting a continuation lower towards the 3957.50 level next.

If we look at the make-up of previous corrections we can see that shortly after breaking down below the last swing low in the bull move, price quickly reversed back above. So, the litmus test will be the 4116 level holding as resistance.

Key Data to Watch

With US inflation having come in much hotter than expected, all eyes are now on tomorrow’s retail sales data. The market is looking for 0.5% and 1% on core and headline respectively. As with inflation, it feels like the bar has been set very low here and if we see another strong data showing tomorrow, this equities rout is likely to continue lower in the near term.

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