S&P 500 hovering dangerously above key support
Fawad Razaqzada February 8, 2016 10:16 PM
<p>As we noted earlier, global equities have plunged today amid growing growth concerns and continues weakness in oil prices. In the US, the major indices […]</p>
As we noted earlier, global equities have plunged today amid growing growth concerns and continues weakness in oil prices. In the US, the major indices are off by over 2-3 per cent each, led by sharp falls in consumer discretionary and financial sectors. The selling pressure could exacerbate if the indices break support. For the S&P 500, the key support is around 1820/30, which is where it bounced from in mid-January off. However, that move failed to materialise into a significant rally. Consequently, the index is once again heading back towards this key support area at the time of this writing. Although there is a possibility for another rebound here, some of the other major global indices have already broken their corresponding key levels and so the S&P could follow suit.
As a reminder, the 1820-30 region marks the neckline of the long-term rounded-top bearish pattern. A decisive break below 1820 could pave the way for further sharp losses. In this scenario, the S&P could easily drop to its 200-week moving average, around 1789, or even the long-term bullish trend going back to the March 2009 low, around the 1750/7 area, before deciding on its next move. But potentially, there is a danger that this bullish trend line would also break down. If this happens, it could potentially clear the way for a drop all the way to 1575/6, the 2007 peak and 38.2% Fibonacci retracement of the entire 2009-2015 upswing.
So, there’s still a lot of ground to be won by the sellers. However, while the S&P holds above 1820/30, there is an admittedly small possibility we may see another bounce of some sort, perhaps towards 1900 again. Conservative traders may therefore want to wait for the S&P to make it move before deciding on which side to be on. But as the near-term trend is bearish, expect any rallies to be short-lived until proven otherwise.
GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.
No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.