Market Update: Correction no longer a healthy one
Within a matter of just two days, the S&P 500 has gone from approaching 1650 as it pushed the upper limits of its short-term trading range of 1600-1640, to abruptly plunging by about 70 points, breaking down through the 1600 support level and bottoming near 1580.
Source: Finviz
The hourly futures chart above shows during overnight hours the Index has undergone a reflex-rally back to prior support at 1600, a very common price reaction after a breakdown. Typically such a bounce-back rally fails at the prior support area -- which is now resistance -- and rolls over.
Where is the next level of support?
Based on the daily chart above, support for the Index now resides in the 1550-1570 range. Also, note the breakdown in the ascending trend line.
I also wanted to point out some similarities between the weekly gold chart discussed here yesterday and the S&P 500's daily chart below.
There is the bullish breakout at the start of this year, the rally into April which then kicked into another gear with a somewhat parabolic rise beyond 1650, followed by a reversal and correction, and more recently a failed run at prior highs (see red circle, a common post-parabolic occurrence) and finally yesterday's breakdown. Much like the weekly gold chart, all pretty classic technical analysis price behavior, as if lifted from the pages of a TA textbook.
The bottom line: the market is now in bearish mode.
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