S&P 500

E-mini S&P 500 futures (ES) Looking to Resume its Downside Trend

The E-mini S&P 500 futures (ES) ended a four-day losing streak Monday night after a tech-driven rebound. So, are we on the cusp of a market turn? 

Elon Musk’s deal with Twitter

Yesterday’s stock performance was mixed, despite the positive trend. The benchmark was down 1.7% by midday, but buyers hadn’t emerged yet. Ultimately, the S&P 500 closed down 24.34 points, or 0.6%. Twitter’s board of directors announced that it agreed to sell the social networking platform to the world’s richest man, Elon Musk, even before the deal was announced.

COVID impacting investor sentiment

After yesterday’s positive reading, the S&P is still down 5.17% in April, dangerously close to its worst month since March 2020, when stocks peaked following the COVID-related collapse.

According to Deutsche Bank strategist Jim Reid, if the S&P declines further than January’s -5.26% return, the S&P will risk the infamous stock of worst monthly return since COVID

The US futures market remains under pressure on Tuesday. After posting modest gains earlier, S&P futures have partially pared the gains. In addition, the safe-haven dollar, as well as gold futures, rose.

After Monday’s sharp sell-off, European stocks were mostly higher across the Atlantic. But, as the Shanghai Composite plunged into the deep red, Asian equities tumbled once again.

A shift in bearish sentiment is expected to signal the start of a bull market. However, a closely monitored indicator of cash flow does not indicate relief.

According to Goldman Sachs, global equity funds experienced negative net inflows for the second consecutive week. The biggest withdrawal since the first quarter of 2020 was $30 billion. Investors were paralyzed by COVID scares during that time.

Earning season

At yesterday’s close, the S&P 500 was year-to-date or down 10% in correction territory. Last week, FANG stock fell almost 9% on Nasdaq, which was once soaring high.

As corporate earnings season produces a surprisingly strong number of earnings, few on Wall Street have called a bottom.

Morgan Stanley’s views     

Morgan Stanley Wealth Management’s chief investment officer, Lisa Shalette, warned investors that more challenges lay ahead. The market appears to be betting on peak inflation, strong earnings growth, and the lack of alternatives to US equities. “We don’t think the bear market is over yet,” she said.

Morgan Stanley’s Shalett is expressing more pessimism than usual. The investment bank strategists used nearly identical words in a separate note on Monday to predict that the S&P will continue to fall. In addition, the equity market strategy team led by Michael J. Wilson wrote that the S&P 500 appears poised to join the ongoing bear market.

E-mini S&P 500 (ES) technical analysis: Bears to dominate

E-mini S&P 500 futures (ES) 4-hour chart
E-mini S&P 500 futures (ES) 4-hour chart

The ES futures price lies below the 20-period SMA on the 4-hour chart. It shows that the trend is bearish. If the negative outlook persists, the index may fall towards the recent swing low of 4196 ahead of the March 15 swing low of 4129.

Alternatively, if the price breaks above the 20-period SMA, the index may test the broken support level of 4360. However, the path of least resistance lies on the downside.