The highs around 2,800 on the S&P 500 were always going to be closely watched levels. But we’d noted a couple of times over the past two weeks that the area could trigger a correction, given the rally from the 2018 lows had lacked any real mean reversion.
With a clear bearish engulfing candle having now formed, we the see potential for further downside on the index – although bears could consider fading into rallies beneath the 2764 lows. But keep in mind there is a tight cluster of support around 2808-15 where the 50, 100 and 200-day eMA’s meet and could tempt profit taking upon a move lower.
We’d also like to see a bounce from current levels to increase the reward/risk potential. If bulls are to take this back above the original breakout level (2764) then the bearish bias is invalidated, and the October and November highs come back into focus.