US equities closed marginally lower on Friday, pre-empting a cautious start to Asia’s opening this morning.

The S&P 500 index’ 50-Day Simple Moving Average (50 SMA) sloped downwards for the first time since November, suggesting the market is technically turning bearish.  Unlike an uptrend in which 50 DMA serves as an immediate support level, in a bearish trend 50 DMA will become an immediate resistance level. 

A technical correction is on its way, and this could potentially snowball into a major one if investors lose further confidence in President Trump and his policy reforms. In fact, this technical correction resulted from rising doubt over Trump’s policy agenda after his recent poor handling of the white supremacist issue, and the resultant resignations of key members of his business advisory council. 

Separately, seasonality analysis tells us that the month of August is usually a bad month for stock markets, giving investors more reason to act with caution. Over each of the past seven years, Singapore’s Straits Times Index closed lower in the month of August, with an average performance of 4.14%. This year, the STI has lost 2.33% month to date.  Similar seasonality patterns are also evident in major indices like the Hang Seng, the S&P and the Dax. 

The recent sell-off in equities sparked rising demand for safety. The gold price attempted to break out of the major resistance level of US$1,295 last week, then quickly fell to the US$1,283 area this morning. Volatility in the stock markets could fuel more upside for gold and other safe havens in the days to come, helping it to break out of the key resistance at US$1,295 and attempt higher highs. A failure to challenge this key resistance level, however, would potentially form a ‘triple top’ pattern in its day chart, which suggest a major pullback. 

Technical Analysis:

S&P 500 - Cash

  • 50-Day Simple Moving Average has flipped downward (bearish signal)
  • Immediate support level at 2,410 area (138% Fibonacci extension level)
  • Immediate resistance level at 2,450 (50 DMA)
  • The momentum indicator MACD is trending lower, suggesting more downside 

Gold - Cash

  • 10-Day Simple Moving Average and SuperTrend (10, 1.5) both sloped upward (bullish)
  • Major resistance level at the 1,295 area (attempted three times this year)
  • Break out above 1,295 will open the floor for more upside
  • Failure to do so will result in ‘triple top’ pattern and signals major pullback

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