S&P 500 continues retreat from highs

<p>The S&P 500 peaked this week around the 2125 level, just under May’s all-time high of 2134, before retreating significantly due partly to some major […]</p>

The S&P 500 peaked this week around the 2125 level, just under May’s all-time high of 2134, before retreating significantly due partly to some major missed earnings releases in the US.

Prior to this drop, the index had been climbing sharply in mid-July from its previous base around the 2035 level, which was a key support level that was last tested during dips in March and April. That climb was prompted by optimism over a potential resolution to the Greek debt crisis, a relative stabilization of China’s turbulent equity markets, and then a positive start to US earnings season. The resulting rebound pushed the index swiftly back above both its 200-day and 50-day moving averages once again.

S&P 500 Daily Chart

 

The subsequent retreat, however, has prompted a return back down to the 50-day average. Despite recent positive economic reports out of the US, including brisk home sales and low unemployment claims, the S&P 500 continues to be under the sway of major company earnings for the time being.

Within this context, there is substantial risk of a further pullback, especially if the index finds its way below the 200-day moving average and the key 2070 level. In this event, major downside support remains around July’s lows at the noted 2035 level.

While this pullback could well occur, the S&P 500 continues to trade within a long-term bullish trend going back more than six years, and could continue this longstanding uptrend after the current pullback.

The clear upside target in this event is at the noted 2134 record high. From a longer-term technical perspective, any further move above that high, in uncharted territory, could begin to target further upside around the 2200 level, which is around the 161.8% Fibonacci extension of the most recent major pullback from the all-time high down to the 2035-area base.

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