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What can we learn from the S&P 500?

|Includes: SPDR S&P 500 Trust ETF (SPY)

Market sentiment has turned negative quickly and investors are still not ready to commit capital on this pullback. I thought it would be good to take a look at one of the broad market indices the S&P 500 index for some insight technically. As you can see on the chart below the high was near the 1150 mark just last week. We closed yesterday at 1091 taking 59 points or 5.1% off the index in effectively three days.

Short term support is 1085 (white line) and 1070 (red line). Take these levels out and we are looking at 1030 as the next level of support. We have moved below both the 20 and 50 day moving average as if they didn’t exist and the volume was well above average on the selling. The VIX index spiked 10 points up near the 28 level during the selling. Technically plenty of short term damage was done.

The last three days the market has calmed and the index held support, but the big question mark is do we move lower from here? While prophet is not in my job description, we do need to look at the probability of a move lower or a bounce back near the previous high. The play here, if there is one would be on the bounce back towards the high. The break below would likely be a result of news and some frustrated investors. I would not be surprised to see an intraday sell off with buyers stepping in and pushing the index up short term. Don’t get me wrong, there is plenty to be concerned about, but technically speaking the probability of a bounce is higher.

The last thing to note on the chart below is the Fibonacci retracement lines off the off the October low (green). 1090 is the 50% retracement level for support along wtih the bottom of the previous trading range (white).

Be patient and let this play out before commiting money at risk. Define your entry, stop and target first.

Disclosure: no positions