The US 500 stock index (cash) has been edging sideways after the rebound from October’s two-year low of 3489.76 hit the buffers near the 50% Fibonacci retracement of the correction from the all-time high of 4,817.51. The latest upward attempt came on Tuesday, but the bulls could only manage a brief spike above the 50% Fibo of 4,153.64.
The positive momentum has since started to wane, although it has not completely dissipated. The RSI is sloping downwards but is holding a fair distance above the 50 neutral level, while the %K and %D lines of the stochastic oscillator remain positively aligned. Both suggest that further upside is possible in the short term even though the downside risks are increasing.
The 20-day simple moving average (SMA) has been a reliable support for this rebound over the past month and could again shield against steeper selloffs. However, if this support crumbles, there would be nothing stopping the index from hitting the psychologically important 4,000 level. Lower down, the 50- and 200-day SMAs stand ready to halt further declines at 3,970 and 3,938, respectively. But breaching these would bring into scope the ascending trendline as the final hurdle keeping the uptrend intact.
On the other hand, if the bulls succeed in cracking above the 50% Fibonacci, the next big test would come at the 61.8% Fibonacci of 4,310.31, which coincides with the August 2022 top, followed by the 78.6% Fibonacci of 4,533.37.
Summing up, clearing the 50% Fibonacci is essential if the benchmark index will continue to make a recovery towards its all-time high, as is holding above the ascending trendline.
