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.
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