SP500 Bounces Amid Short Covering

It has been a positive day for stocks so far and the SP500 index was trading 1 percent stronger during the London session on Monday, hovering at around 2,656 USD.

Bulls managed to defend the first strong support near 2,635 USD and the price rose above the short-term bearish trend line, which switched the near term outlook back to bullish. The next resistance could be now at 2,685 USD, where previous lows are seen and if the index jumps above, a further relief rally might push the price beyond the psychological level of 2,700 USD.

Stocks look oversold on higher time-frames and thus this correction is based mainly on short covering. However, the overall fundamental situation still seems bearish, meaning investors might use higher prices to exit their long positions. However, December is very often a positive month for equities, which could mean we could see a powerful rally heading into the year-end. Nevertheless, the short-covering premise remains active.

The intraday support is now seen near 2,645 USD and while above, the immediate outlook seems bullish, with another zone at last week’s lows at around 2,635 USD, which converged with the broken bearish trend line.

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