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Today we’re taking a look at a simple technical setup on the S&P 500, back at a major support area thanks to rising risks from multiple directions. Is this another “buy the dip” opportunity or should traders look for a break in the uptrend?

Will Traders Buy the Dip on the S&P 500?

E-mini S&P 500 Futures 4-Hour
E-mini S&P 500 Futures 4-Hour

We’ve got a simple technical setup making it to the top of the watchlist today, one for all of you CFD, futures and equity traders out there.

On the four hour chart above, we can see that the S&P 500 has recently taken a dip from all time highs at 4476.50, likely on rising global growth concerns as the covid-19 gained ground on humans once again. It’s also likely some traders are feeling the need to take down some risk as the odds of a Fed taper rise in the U.S., especially after yesterday’s release of the latest FOMC meeting hinted as much.

This brought the S&P 500 down too a major support area around 4375, where it started as a short-term resistance area in July, then flipped to a strong support area after broken. This area also lines up with a rising ‘lows’ pattern that has been solid as a short-term bullish turning point for this market going back to November 2020. We can also see that the stochastic indicator recently touch the oversold area, which in the past has correlated with short-term bottoms.

So, technical traders may be eyeing this dip hard as a potential buying opportunity, but fundamental traders may be leaning a bit more defensive at this point.

It’s likely that developments with the covid-19 pandemic will continue to be the main driver of financial markets, and with the current trend showing a fast rise in cases, risk aversion behavior will likely continue to creep in for the short-term.

It’s a bit tricky though as the pandemic situation may also influence speculation on when the Fed may taper quantitative easing measures. If governments are unable to contain the spread, it’s likely central banks are not going to tighten right away, as we saw with the Reserve Bank of New Zealand this week. This could be supportive of risk taking behavior in equities.

Overall, there are arguments for both sides of the market, but we’re leaning neutral to bullish at the moment on the S&P 500. Easy Fed policies have been the main driver for equities for a decade now, and with the odds rising of the Fed holding off on tapering, the bulls may win out once again on this dip. We’ll be on the lookout for bullish patterns before building a long position, as well as being ready to go short if the market breaks below the rising ‘lows’ pattern on a major catalyst.

What do you guys think? Is the S&P 500 going to draw in bulls once again on the dip? Or will the covid-19 pandemic develop in a way that pushes traders away from risk assets? 

Let me know in the comments below, and as always, remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t simply follow what I do.

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.