SP500 Soars on Short Covering

Sentiment improved on Wednesday and stocks immediately rose sharply, with EU indices up 1 percent and the SP500 index advancing 0.85 percent during the London session. It was trading at 2,660 USD at the last check.

Yesterday’s sell-off stopped exactly at October lows near 2,635 USD, but the price failed to drop below and therefore this could potentially be a bullish scenario with a double bottom pattern. The first major resistance of the previous bullish trend line is now being tested and if the index breaks above this level, further rise toward 2,700 USD could occur quickly and, the short-term outlook could turn back to bullish.

On the downside, if the mentioned trend line resistance holds, we could see the continuation of the current downward trend, with a possible target for bears at 2,635 USD. If this is broken, another sell-off toward October lows of 2,605 USD might occur.

Stocks have dropped sharply over the last two days and therefore, today’s correction was to be expected but bears should defend 2,660 USD to keep the outlook negative.

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