S&P 500 Validates Resistance, Looking to Test Support
- Yesterday’s decline put the S&P 500 at worst closing price in several days
- Trend-line resistance proving its weight so far
- Market has been in two-day pullback, rally mode; watch for change in behavior
Yesterday’s drop wasn’t an aggressive move lower by any means, but it did result in the S&P 500 ending with its lowest close in several days. Since the rise from the ashes began on February 11 no pullback has lasted beyond two days, which makes the next few days important. Will the pattern of quick pullbacks and return to new highs continue, or will a different sequence develop?
As we have been discussing, this pullback is beginning from a trend-line of minor degree for the S&P 500 and of a more significant degree for the Dow. The fact the market reacted off those lines on initial contact further validates them as worthy resistance. With that in mind, how price action plays out around these levels holds even greater importance than if the market was trading in ‘open space’, with no obstacles in its way.
The S&P is currently trading below a couple of angles of support in early US trade. The trend-line off the Feb 11 low was taken out yesterday, then a trend-line from the Feb 24 pivot was clipped overnight. This puts the prior area where the market last dipped/consolidated into focus (Mar 14/15), between 2015 and 2024. Just a bit below that zone is another one zone with a series of inflection points between 2004 and 2009. This could also constitute as a 'back-side test' of the previously broken minor trend-line.
S&P 500 Daily/Hourly
We made note on Wednesday it was unlikely we would see the market fall from the sky without first seeing a fight from buyers given the persistence of the trend off the February lows. With that more likely than not being the case, we will look for a bounce from support and see how the market reacts on any approach it makes towards the recent highs/trend-lines. A couple of failed attempts to push higher would provide indication buyers are worn out, further validating resistance. Then we may be able to say the two-day sell-off and rally days are over.
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---Written by Paul Robinson, Market Analyst
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.