The S&P 500 index closed virtually flat on Tuesday following Monday’s sell-off and late-day rebound off the 4,300 price level. Is the correction over?
The S&P 500 index fell the lowest since July 20 on Monday, as it reached the daily low of 4,305.91. It was 239.9 points or 5.28% below the Sept. 2 record high of 4,545.85. We’ve witnessed an intraday rebound as the market closed around 52 points above the daily low. And on Tuesday it got back to the 4,400 price level before closing 0.08% lower, at 4,354.19.
The nearest important support level of the broad stock market index is now at 4,300-4,330 and the next support level is at 4,200. On the other hand, the nearest important resistance level is now at 4,400-4,450, marked by the previous support level. The S&P 500 broke below its more-than-four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Medium-Term Downward Reversal Or Just A Correction?
The S&P 500 index broke below its medium-term upward trend line a few weeks ago. On Monday it fell to the nearest important support level is of 4,300, as we can see on the weekly chart:
Dow Jones Remains Relatively Weak
Let’s take a look at the Dow Jones Industrial Average chart. In early September the blue-chip index broke below a two-month-long rising wedge downward reversal pattern. It remained relatively weaker in August-September, as it didn’t reach new record high, like the S&P 500 and the Nasdaq. And on Monday, it fell below its July local low of around 33,740 before bouncing back to the 34,000 mark. The resistance level is now at 34,000-34,500, and the support level remains at around 33,500, as we can see on the daily chart:
Apple Is At Previous Local Lows
Apple (NASDAQ:AAPL) stock weighs around 6.3% in the S&P 500 index, so it is important for the whole broad stock market picture. In early September it reached a new record high of $157.26. Since then it has been declining. So it looked like a bull trap trading action. On Monday, the stock sold off to the previous local lows along the $142 price level. It acts as a support level. On the other hand, the resistance level is at around $145-146, marked by the recent local lows.
Conclusion
On Monday, the S&P 500 index accelerated the downtrend from the early September record high and yesterday it bounced to the 4,400 price level before closing virtually flat. It looked like a short-covering rally and a short-term upward correction. Today, we will have the important FOMC release at 2 p.m. We will likely see an increased volatility and the index may fluctuate within its Monday’s daily trading range.
There have been no confirmed positive signals so far. Therefore, we think that the short position is justified from the risk/reward perspective.
Here’s the breakdown:
- The market accelerated its downtrend on Monday, as the S&P 500 index got close to 4,300 level.
- Our speculative short position is still justified from the risk/reward perspective.
- We are expecting some more downward pressure and a correction to 4,200-4,250 level.