SP500 - TECHNICAL ANALYSIS AND QUARTER II OUTLOOK

Welcome to a new article on my blog dedicated to financial markets! Today we will focus on the technical analysis of the SP500 index and the forecasts for the second quarter of 2023. As always, my goal is to provide you with an accurate and in-depth technical analysis, taking into account market dynamics and relevant signals.

In this analysis, we will examine the index through the pure technical anaysis from three different perspectives: one based on volumes, the second based on price ranges, and the last related to pivot points. This combined approach will allow us to capture a more complete picture of the market and offer more reliable forecasts for the upcoming quarter.

Continue reading to discover my opinions and predictions about the performance of the index in the second quarter of this year and how these factors could influence your investment decisions. Enjoy the read!

SP500 TECHNICAL ANALYSIS BASED ON VOLUMES

Starting with a historical composite volume profile on the right and one relative to the exchange that took place during the first quarter of this year on the left, we will first analyze the most relevant levels. The first quarter of this year saw a fairly balanced distribution of traded volumes with prices evolving in a trading range between 4208.50 and 3814.50 points.

The bell-shaped distribution profile is indeed in the shape of a "D" and sees a quarterly VPOC at 4003, delimited by the Value Area High (VAH) at 4101 and the Value Area Low (VAL) at 3908 (highlighted in light blue). This is the area with the highest exchange of the year. The composite historical VPOC following the closure of the first quarter is updated to 3965 points.

We then observe in the chart two composite low-volume nodes calculated on the entire history of the index, respectively at 4265 and 3715 points.

In summary, low volume nodes can be useful for identifying potential areas of support or resistance in the market, as they represent price levels at which traders have shown little interest in the past. Therefore, these areas may be associated with rapid price movements when the market crosses these zones with ease due to a lack of liquidity or interest from investors. High volume nodes (VPOC in particular) are equally useful for identifying areas of interest in the market and can serve as indicators of possible trend reversals or consolidation areas in the upcoming quarters.

The beginning of the second quarter already sees prices finding a first important support on the Value Area High (VAH) of the first three months in the 4100 area.

Volume based analysis SP500 future

SP500 TECHNICAL ANALYSIS BASED ON KEY RANGES

The analysis of price ranges (or average range) is a method I use to assess the volatility and behavior of any financial asset. In this context, the price range refers to the difference between the highest and lowest price reached by the index during the first quarter of the year. As mentioned in the previous paragraph, we see highs at 4208.50 and lows at 3814.50 points. Therefore, the range described by the prices in the first three months is 394 points.

The average range, on the other hand, is the average of the price ranges observed in a given number of periods (quarters for this analysis). I usually use a period of 10 quarters to get a clearer view of the recent volatility of a security. In particular, the average of the index calculated over the last 10 quarters is 544 points. This tells us that price volatility is declining compared to the average.

In the quarterly timeframe chart shown below, we can observe two key ranges very important for this analysis:

a) The bullish impulse on the left (key range 1) that projected prices from the lows of the Covid period to the highs of 2022 (2179 - 4804).

b) The bearish impulse on the right (key range 2) that projected prices from the highs to the lows of 2022 (4808 - 3502).

These two impulses are defined as reference key ranges since they see a structure of highs and lows well described by price action.

Through the analysis of the key levels of the two impulses, we try to make a prediction of the price trend in the second quarter of this year, and why not also in the subsequent periods. The key levels of a key range are 50% (midpoint), the highs and lows, and the range extensions, especially 25%, 50%, and 100%. These are all levels at which prices can easily find support or resistance.

It is important first of all to observe how the lows of 2022 (the last quarter of last year) coincide with the midpoint of the first key range (3492 points). Prices found the lows precisely on the most evident support during the bearish phase of last year. The restart we are observing this year describes in fact the pullback from this level. We can therefore assert that the first test of the midpoint has seen a bullish reaction of clear defense. Analyzing then the key range 2, we notice how prices have already arrived to test the reference midpoint in the 4155 area. This setup thus puts us in front of two possible scenarios:

a) Prices find resistance at the midpoint and return to test the lows at 3502: personally, I believe that this may be the most plausible scenario taking into account the market structure established since the beginning of 2022 and a geopolitical situation that remains in any case very uncertain.

b) Prices further benefit from this pullback or short-term bullish impulse to return even to test the highs of 2022 in the 4808 area: less likely in my opinion compared to the first scenario, at least in the second quarter of this year.

Key range analysis SP500 future

SP500 TECHNICAL ANALYSIS BASED ON PIVOT LEVELS

I conclude my analysis on the Future by examining the relationships between the various pivot points that I usually use, starting with the Central Pivot Range or CPR.

Always referring to the just-closed quarter, we immediately notice that the relationship between the CPRs of the two quarters is higher. This means that the bias for the next three months is bullish since both the March close and the April open are located above the Top Pivot (high base of the CPR). The Camarilla Pivot L3 is located inside the CPR in the 4030 area. This level will attract the attention of bullish investors ready to defend any pullback in this zone. The width of the current CPR is in line with the average of the last 10 quarters, so I cannot lean on the expected volatility of the next three months.

As previously mentioned, a price rebound from the 4155 area (midpoint key range 2) could result in a decline towards the midpoint of the previous quarter (4012) if not even towards the lows at 3814.

A further bearish extension could find bullish defense in the 3710 area where we find both Camarilla L5 and the 25% extension of the first quarter, in fact, a very important confluence point.

Conversely, if prices were supported by bullish strength as we have already observed since mid-March, we could witness a test of the highs at 4208.50. If they were to be broken to the upside, the area to watch would be that of 4300, where R1 and the 25% extension of the first quarter are located, yet another confluence zone.

Pivot based analysis SP500 future

SP500 TECHNICAL ANALYSIS BASED ON KEY LEVELS

After the examination carried out in these three sections, I conclude by summarizing the key levels to be monitored during the April-June period in the table below:

BEARISH REACTION ZONE	AREA	BULLISH REACTION ZONE	AREA
Midpoint key range 2	4155	Quarter I VAH	4100
Quarter I High	4208	Quarter I Midpoint + L3	4012-4030
Composite ow volume node	4265	Historic VPOC	3965
Quarter I R1/25% Ext + Semester II 2022 Highs/R1/H4	​4295-4325​	Quarter I VAL	3908
		Quarter I Low	3814
		Quarter I L5/25% Ext	3710

These key levels can be useful for understanding the market structure and identifying potential entry and exit points for your trades during the second quarter of the year. As always, it's important to consider the overall market context, including geopolitical events, economic indicators, and individual company performance, as these factors can influence the direction and magnitude of market movements.

Remember that market analysis and predictions are not a guarantee of future performance, and it's essential to conduct your research and consider your risk tolerance before making any investment decisions. Stay informed, monitor the market, and use the key levels provided in this analysis to guide your decision-making process.

Good luck in your trading during the second quarter of 2023!