The Standard & Poor’s 500 Index may slump about 5 percent in an “overdue” decline that could hit emerging-market stock benchmarks even harder, according to technical analysis by Chart Partners Group Ltd.
The U.S. index closed yesterday at 1,208.67. Failure to breach a key Fibonacci resistance level at 1,213.92 may trigger a retreat to as low as 1,150 and prompt even sharper declines in emerging-market gauges, said Thomas Schroeder, managing director at Chart Partners in Bangkok.
“If the S&P 500 pulls back and starts to correct, emerging markets, which typically fall harder, are going to get hammered,” Schroeder said in a telephone interview yesterday. “Emerging markets have been laggards this year, rising in sympathy with the U.S. markets.”
The S&P 500 has climbed 8.4 percent this year as better-than-estimated economic reports and corporate earnings around the world fueled confidence in the global recovery. The MSCI Emerging Markets Index has risen 3.1 percent this year, after surging 75 percent in 2009.
Fibonacci analysis identifies 1,213.92 as the 100 percent resistance level from the S&P 500’s intraday low of 1,044.50 on Feb. 5 and April 15 high of 1,213.92.
“I’m really looking for a correction back to the 1,150 level,” said Schroeder. “If we break below that, there are bigger problems. If we don’t, we’ll rally back up to re-test current levels.”
In technical analysis, a Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent, according to Investopedia.com.
Once these levels are identified, horizontal lines are drawn and used to identify possible resistance and support levels. If a price breaks through one of the levels, it may signal a move toward the next resistance or support point.