Macro Overview

When it comes to price action, we are using S&P 500 chart to represent the US Stock Market. As shown, the highest price level was in January of this year, and a short-term downtrend followed this. Afterward, it formed a base between the current support of 4150-4200 to the current resistance at 4600 where the price has been consolidating since early February.

Market Sentiment

Currently, the market sentiment is generally pessimistic. It is understandable since US indices, including the S&P 500, had gone down in value considerably since the start of the year. There still is not a catalyst that would propel the prices upward. However, there are indications that the market has already priced in the worst. It is likely to be overextended due to the overwhelming sell-off throughout the events that shaped the first four months of the year. If this is indeed an overreaction from market participants, then a reversal is bound to happen.

PRICE PREDICTIONS

Likely Scenario

Technically, the chart supports the hypothesis that we might be seeing the light at the end of the tunnel. The support established at 4150-4200 has been tested twice and did not break. It could indicate a significant interest in the stock market on this level since it is at its cheapest. The demand around this area prevents the index from going further down. The price approached the support area once again, but probability-wise – this could be a grand entry as it is more likely to bounce back from this point on rather than break the current support levels. We have also mentioned indications of overextension from the overreaction of market participants due to the fearful atmosphere in the stock market right now. Looking at Fibonacci retracement levels. There might be considerable initial resistance at 0.5 (4400) to 0.618 levels (4450).

Additionally, these levels have been contested in the price action history shown in the chart, where the price hovers around this area previously this year. If enough demand pushes the index above this level (4400-4450), then the next resistance would be the major current resistance at 4600. The price will likely stay in this area as it consolidates further.

Better Scenario

The better scenario would be that the price would bounce back from the established support level and increase its momentum to break its current resistance at 4600 ultimately. When this happens, the current resistance at 4600 will be turned into the new support, and it will consolidate within the next major resistance, the highest year-to-date price in January at 4800. Most likely, if this scenario occurred, the price would be consolidating between those key areas, and if a market catalyst could be identified, it would break the current ceiling of 4800. However, the way I see it, this would only happen if there is enough interest and optimism in the market in the form of a catalyst.

Worst Scenario The “worst scenario” would be prices push below its current support levels of 4150-4200 and further breaks the 4000 major support level. If the war in Ukraine continues to worsen and inflation continues to rise further, that could put more constraints on consumer demand, which could soften economic growth. With the central banks increasing rates and the U.S. Fed aggressively tightening, this could definitely slow down the economy. The only question is will the tightening in financial conditions push us into a recession? Only time will tell….