Autumn can become ugly for equities and bond holders. Comfort for dollar longs

S&P 500 was rejected at the medium-term falling trend line a few weeks ago just below the 0.618 Fibonacci retracement at 4,367 and just below the 55 Simple Moving Average, which is declining, indicating an underlying bearish sentiment.  

Key resistance level is at 4,325. If S&P 500 closes above the falling trend line and above 4,325 the bearish picture has reversed, and the leading US index will push for levels around 4,600 and possibly all-time highs. 

The trend is down on the medium term but bulls don’t give up without a fight. If they can’t hold S&P 500 above 3,886, US equities are likely in for a rough Q4.

Depending on how the market reacts to the October earnings season, the first month of Q4 can be become ugly. If S&P 500 closes below 3,886 June lows around 3,636 are likely to be taken out and a 3,500-3,200 consolidation area could be reached in Q4. 

3,503 is the 0.50 Fibonacci retracement of the 2020–2022 bull market and 3,200 is close to the 0.618 retracement level (3,195 to be exact). It is also the 0.382 retracement of the 2009 (end of subprime crisis bear market) through to the 2002 peak bull market. 

There is still massive divergence on RSI that needs to be traded out. That can be done by either a higher high on both RSI and the Index, or by an RSI close below the 40 threshold. For RSI to drop below 40 and reset/trade out the divergence, lower levels on the S&P 500 are needed. 

EURUSD

The past 18 months of downtrend in EURUSD paused at parity and in the middle of the wide falling channel it has been trading in the past ten years.  

Just as most market participants thought that it was the last time in a very long time we were to see the euro being stronger than the dollar, the euro has bounced back strongly. 

However, it was time for a correction after almost 18 months in one direction. A correction could take EURUSD to around 1.0350 resistance. 

The downtrend is likely to resume in Q4 and the parity and consolidation areas are likely to be tested once again—this time they’re likely to be taken out. The consolidation area was “founded” back in 2002 just before an almost decade-long bull move in EURUSD. 

If parity is broken again, EURUSD is likely to drop swiftly to the lower level of the consolidation area, around 0.96. 

However, 0.96 is not a strong support level and if EURUSD moves below the middle of the wide channel trendline, selling pressure could accelerate and push EURUSD to 0.90. 

0.90 is the 1.618 Fibonacci projection level of the 2020–2022 up-and-down trend. Parity is at the 1.382 projection and 0.90 is close to the 2.00 projection.