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Prospects For Major Shake-Up Of Italy's Tax System

A sharp sell-off in the E-mini S&P yesterday highlights the first significant threat to the bullish cycle that has been in place since early November. The key technical developments that warn of a top are:

  • A clear breach of the 20-day EMA yesterday at 3706.50. The close below this average reinforces the short-term significance of the break.
  • Support at 3740.50, Jan 19 low has also been breached.
  • This leaves the 50-day EMA exposed. The average intersects at 3696.02 and represents an important support area today. A break would strengthen a bearish case.
  • It could be argued that yesterday's candle pattern is a bearish engulfing reversal.

Note, both the 20- and 50-day EMAs continue to highlight a broader bullish theme. This is important as levels below the 50-day EMA would represent a potential "buy-zone" - a strong area of support. Buy-zones in this instance do not refer to specific price levels. Instead they highlight a price region where demand may begin to increase. We will be on the lookout for any basing signals near-term.

An additional bearish technical feature to note is our trend direction model in the index. This tracks underlying sentiment on the 60-minute frequency and it shifted to bearish yesterday. This reverses the previous bull signal that had been in place since Nov 4 2020. The signal is important in that it highlights a new bearish risk in this market.

Support levels to watch are:

  • SUP 1: 3696.02 - 50-day EAM
  • SUP 2: 3562.50 - Jan 4 low
  • SUP 3 3568.50 - High Sep 3, 2020 and a former breakout level.

Key resistance has been defined at 3862.25, the Jan 26 high. A break would resume the uptrend and negate any bearish risk.

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