S&P 500 E-mini futures in turmoil this Monday

Introduction

In our previous analysis on January 16, 2025, we identified the potential for ES to continue its rally within the bullish channel with the all-time high (ATH) at 6,154.75 as the next target. Price recently tested this level but failed to break through, forming a double top pattern on the daily chart.

Today has started with a sell-off, lets see why.

Market drivers behind the sell-off

Hawkish Fed:

• Federal Reserve officials have reiterated their stance on keeping interest rates elevated for an extended period to combat inflation, causing investors to reassess growth prospects.
• This has led to concerns about higher borrowing costs and a potential slowdown in corporate earnings growth.

Profit-Taking Near ATH Levels:

• Investors appear to be taking profits after the strong rally in January, with price stalling at resistance.
• The failure to break above the ATH has reinforced short-term selling pressure.

Trump Administration Policies Taking Effect:

• President Trump’s new economic policies, including corporate tax cuts and trade renegotiations, have begun to take effect.
• Concerns surrounding potential trade tensions and their impact on global supply chains have contributed to the cautious market tone.
• Deregulation efforts in the energy and financial sectors have been well received, but investors are awaiting further clarity on fiscal spending initiatives.

Global Economic Concerns:

• Weak economic data out of Europe and China has added to global growth concerns, contributing to the broader risk-off sentiment in today’s sessions.

Technical analysis

Double Top Formation

• A clear double top has formed at the 6,154.75 ATH.
• Confirmation of the pattern would require a break below key support at 5,811.95 (50-day SMA), which could trigger further downside toward lower support levels.

Support and Resistance Levels

Resistance Levels (Upside Targets):

1. 6,154.75 (ATH) – The key resistance level; a breakout above this level would invalidate the double top and open the door for further upside.
2. 6,200 – 6,250 – Potential extended upside target if bulls regain control.

Support Levels (Downside Risk Zones):

1. 6,012.95 (50-day SMA) – Immediate support level; a breakdown could accelerate selling pressure.
2. 5,900 (Channel Support) – The lower trendline of the bullish channel; a critical area to watch.
3. 5,649.79 (200-day SMA) – Long-term support; a break below this level would signal a structural shift in trend.

Scenarios to watch

Bullish Case (Continuation Higher):

• A bounce off the 6,012.95 support level could lead to another retest of the 6,154.75 ATH.
• A breakout above the ATH would invalidate the double top pattern and open the path to 6,200 – 6,250 in the short term.

Bearish Case (Breakdown from Key Levels):

• A confirmed break below the 50-day SMA at 6,012.95 would likely lead to a test of channel support near 5,900, followed by the 200-day SMA at 5,649.79.
• Failure to hold these levels could result in a broader correction.

Possible trade setups

Bullish Setup:

• Entry: Long positions on a successful retest and hold above 6,012.95 (50-day SMA).
• Targets:
  • First target: 6,100.
  • Second target: 6,154.75 (ATH).
• Stop-Loss: Below 5,990 to limit downside risk.

Bearish Setup:

• Entry: Short positions on rejection from the ATH (6,154.75) or breakdown below 6,012.95.
• Targets:
  • First target: 5,900 (channel support).
  • Second target: 5,650 (200-day SMA).
• Stop-Loss: Above 6,100 to manage risk.